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236 XINSHEN DIAO ET AL.


agricultural spending is more effective than nonagricultural spending for agricul- tural productivity growth. But we are skeptical of using this nonagricultural spending elasticity in the analysis for the following reasons. First, constrained by the data availability, we have to defi ne nonagricultural spending as the difference between total spending and agricultural spending. Thus, part of spending that is classifi ed as nonagricultural may directly target agricultural and rural development (for example, rural road and rural electrifi cation). Second, the quality of data for agricultural spending is rela- tively poor compared with the total spending data, and agricultural spending is a small portion of total spending (less than 4 percent in most years). As a result, the data are likely to produce a biased estimate by not fully distinguishing between the direct and indirect effects of nonagricultural spending. Furthermore, the estimated nonagricultural elasticity is inconsistent with growth in both agricultural and non- agricultural spending if we use it to calibrate the historical data. For these reasons, a calibration method is applied in this study for the nonagricultural elasticity using the historical data for agricultural and nonagricultural spending and growth in agricultural TFP, together with the estimated elasticity for the agricultural spending. The calibrated nonagricultural spending elasticity is 0.14. We consider four scenarios in assessing the growth in agricultural spending


required to support the 5.62 percent agricultural TFP growth rate obtained from the Agriculture scenario of the DCGE model. In the fi rst scenario, the elasticity of agricultural TFP with respect to agriculture spending as our estimation result (0.24) is applied. We assume that the growth rate of nonagricultural spending is the same as that of the current trend (which is the same as in the baseline). Combining this value with an elasticity of 0.14 with respect to the nonagricultural spending, our analysis shows that 23.8 percent of annual growth in agricultural spending is required in 2009–17 to support the target of 9.45 percent agricultural growth (and 5.62 percent agricultural TFP growth). This result is consistent with the estimation of Fan, Yu, and Saurkar (2008), in which 25.1 percent of annual growth is required for agricultural spending to achieve the fi rst MDG in Nigeria. However, when the agricultural spending is assumed to be more effi cient in the second scenario of our analysis (that is, the value of elasticity is increased from 0.24 to 0.41), required agricultural spending only needs to grow at 13.6 percent per year (Table 8.8). Using the additional growth in agricultural spending and given the growth in the nonagricultural spending, the share of agricultural spending in government total expenditure rises gradually. Currently, agriculture accounts for 4.2 percent of total government expenditure; this share will eventually rise to 14.6 percent by 2015 and 18.6 percent by 2017 using the low elasticity in the fi rst scenario. In the second scenario with a high elasticity (that is, assuming improved spending effi - ciency), the share of agricultural expenditure in total spending will be 7.3 percent


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