- Knowledge base
- Policy question
Poverty eradication is fundamentally different from poverty reduction. Poverty can be halved through reduction in emerging market economies alone; but poverty eradication requires its eradication in least developed countries (LDCs), where it is worst and declining most slowly, and where the obstacles are greatest. Most LDCs are predominantly rural; their rural population is growing strongly; and poverty is most severe in rural areas. With a limit to the sustainable rate of urbanization, rural development is critical.
Since income transfers are financially unsustainable and logistically impracticable on the necessary scale, employment creation is central, at incomes above the poverty line. And to be sustainable, incomes must be matched by productivity. Since rural productivity in LDCs is far below the poverty line, sustainable poverty eradication will require massive employment creation, with much higher productivity.
While agricultural upgrading is critical, high levels of under-employment in agriculture make simultaneous achievement of such major increases in productivity and employment impossible. Diversifying rural economies beyond agriculture is thus essential. This is not “either/or”, but a question of harnessing the considerable synergies between agriculture and non-agricultural development.
Increasing agricultural productivity increases demand for non-agricultural goods and services, but displaces labour; developing non-agricultural production can satisfy this demand, while helping to absorb the surplus labour and creating demand for higher-value foods. Agricultural processing and packaging make produce more transportable, widening its market. And each sector generates surplus income, essential for investment in the absence of functioning credit markets.
The virtuous circle created by such synergies has the potential ultimately to eradicate poverty where it is most entrenched, to turn the rural sector from a brake on development to an engine. It would also reduce rural-urban inequalities, easing pressures for rural-urban migration, and thus contributing to urban poverty reduction.
Once initiated, such a virtuous circle could be largely self-sustaining; and non-agricultural enterprises’ competitiveness and capacity to exploit economies of scale should increase as improvement of rural transport infrastructure increases exposure to competition and widens markets. However, initiating such a process requires a “kick-start” on the supply-side and the demand-side, as shown below.
Dutch (and other donors’) development policies could best promote such a process by:
Trade policy could play a complementary role by:
Given the Netherlands’ historical leadership role and disproportionate influence on development issues, its impact could be further increased by actively promoting a similar approach among other national governments and international institutions in international fora such as the EU, the OECD Development Assistance Committee, the World Bank and the WTO.
 For a more detailed discussion, see UNCTAD (2014) The Least Developed Countries Report, 2014 (http://unctad.org/en/PublicationsLibrary/ldc2014_en.pdf), pp 129-133.
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