International trade and agricultural productivity: evidences from least developed countries

Abstract

From many perspectives, agricultural production is essential to the economic growth of the least developed countries (LDCs). While international trade is considered one of the main sources of growth, the fact that LDCs rely heavily on primary commodities export and may not benefit significantly from trade raises concerns about the impact of trade on the economic development of LDCs. In this paper, the instrumental variable method was employed to ensure consistency and unbiasedness of the estimates of the impact of trade on agricultural productivity. The resource rents was used as an instrumental variable in determining the export and import indexes, especially in the case of LDCs. The semi-elasticity showed that a one percentage point increase in the terms of trade reduced agricultural productivity growth by approximately 0.23% on average, holding other factors constant. This estimate was statistically significant, and implied that expansion in trade does not improve agricultural productivity in LDCs.