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School of Business | Department of Economics | Economics | 2014
Thesis number: 13841
Foreign direct investments in agricultural land in Africa: 1-2-3-4 CGE model study for Ghana
Author: Kauttu, Topi
Title: Foreign direct investments in agricultural land in Africa: 1-2-3-4 CGE model study for Ghana
Year: 2014  Language: eng
Department: Department of Economics
Academic subject: Economics
Index terms: kansantaloustiede; economics; maatalous; agriculture; ulkomaiset investoinnit; foreign investments; Afrikka; Africa; maatilatalous; farming
Pages: 138
Full text:
» hse_ethesis_13841.pdf pdf  size:2 MB (1991378)
Key terms: FDI; property rights; CGE model; large-scale farms; outgrower schemes; contract farming; biofuels; cash cropping; agricultural land; host country effects; wages; job creation; productivity; capital; infrastructure; contracts; exports; unused land
Abstract:
This thesis studies foreign direct investments (FDI) in agricultural land in Africa. The paper aims at identifying effects of agricultural FDIs in host countries and finding answers for why the effects occur. A computable general equilibrium model, 1-2-3-4 CGE model, is constructed for Ghana and its results are compared to other studies and empirical evidence. Based on the 1-2-3-4 CGE model and other studies, the paper constructs policy tools and recommendations through which African recipient countries could benefit from agricultural FDIs.

The paper discusses first drivers and background behind growing interest in African farm land. Next, the paper presents extensive literature of FDIs, features of African agriculture and property rights. Third, the paper utilizes studies of 1-2-3 CGE model and presents a 1-2-3-4 case model study for Ghana. Actual numbers are used in the model and the data is mainly gathered from Bank of Ghana, Ghana Statistical Service and World Bank (WDI database). Adjustments are made to data and the 1-2-3-4 model relies also on assumptions made by the author. The model study focuses on biofuels (cash cropping) and model's results are compared to Ghana's actual development after oil production jump started in Ghana in 2010. Comparison is also made with studies of biofuel-related agricultural FDIs in Ghana and Tanzania. Policy tools and recommendations are then constructed based on the literature, results of the 1-2-3-4 model, the analysis of Ghana's realized development as well as FDI studies from Ghana and Tanzania.

Results from the 1-2-3-4 CGE model are welfare improving from Ghana's perspective. However, the results are conditional on the assumptions that are not entirely in line with empirical evidence and thus, the results cannot be generalized to cover FDIs in a broader perspective. As expected, positive resource shock (agricultural land from "unused land stock") yields positive results regarding trade and GDP. Ghana's realized development during study period 2010-2013 shows similar results to the 1-2-3-4 model, but there are also differences. Both of these show that exports and GDP growth is not transferred that well to private consumption and households' welfare. 1-2-3-4 model study results and literature indicates that there is potential in agricultural FDIs to yield positive host country impacts. When tools and recommendations are constructed, it becomes apparent that they are conditional on each other. Limitations and tools' requirements thus indicate that a comprehensive approach is needed from host countries. With a strategic approach and focusing on using multiple tools at the same time host countries should be more likely to securing benefits from agricultural FDIs.
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