Economic Motors for Poverty Reduction in Madagascar

This study aims to evaluate the effect of four investments to achieve pro-poor economic growth: 1. Increase in agricultural productivity of rice and cassava; 2. Investments in roads that lead to a reduction of marketing costs; 3. Increase in private investments in the Free Trade Zone; 4. Increase of investments in tourism. Given that the evaluation of the impact of such investments is complex, the authors use a newly constructed computable general equilibrium model (CGE) of Madagascar that captures all the interactions within the Malagasy economic system. As expected, the four investments have markedly different poverty effects. Agricultural research (leading to increased agricultural productivity and increased food production) and road construction increase incomes of the rural poor, and benefit poor urban consumers through reductions in food prices. The other two investments - the Free Trade zone and tourism - are more beneficial for urban households, both poor and non-poor. Tourism also has non-negligible effects on the rural poor in some regions through increased employment and earnings opportunities. Hence, each investment has a different and important role to play for poverty alleviation in Madagascar.