Reassessing the Role of Agriculture: Limited Impact of Agricultural Production on Growth Stability in Developing Economies

Résumé

Abstract

Objective: This study investigates whether agricultural production enhances macroeconomic growth stability in developing economies, examining both direct effects and the moderating role of climate-related factorsMethodology: We employ a panel data approach using Pooled OLS, Country Fixed Effects, Two-Way Fixed Effects (country and year), and Two-Stage Least Squares (2SLS) instrumental variable estimators. Endogeneity is addressed through internal instruments (deeper lags of the dependent variable), with instrument strength validated by a first-stage F-statistic of 35.12. Diagnostic tests include VIF for multicollinearity, Jarque-Bera for normality, Breusch-Pagan for heteroskedasticity, Cook's Distance for influential observations, and Leave-One-Country-Out for coefficient stability.Sample: The study uses 144 country-year observations from 16 developing economies across Latin America, East and Southeast Asia, South Asia, Sub-Saharan Africa, and the MENA region over the period 2015–2024. The dependent variable is a novel non-parametric growth stability index constructed as the reciprocal of the absolute deviation of GDP growth from its long-term trend.Key Findings: Agricultural production volume has no statistically significant direct effect on growth stability across all specifications, challenging linear Agriculture-Led Growth narratives. However, the Climate Change Performance Index enters positively and significantly under country fixed effects (β = 0.065, p < 0.01), indicating that environmental performance—not raw output volume—is the operative channel through which agriculture influences macroeconomic resilience. Growth stability exhibits strong persistence (coefficient 0.724–0.809, p < 0.01), suggesting path dependence and slow adjustment to policy interventions. Inflation significantly destabilizes growth paths (β = -0.017, p < 0.05), while trade openness contributes conditionally to stability (β = 0.058, p < 0.01 under country FE). The two-way fixed effects model explains 96.35% of the variation in growth stability (R² = 0.9635).Conclusion: Expanding agricultural output alone cannot buffer developing economies against boom-and-bust cycles. Effective stabilization requires climate-smart agriculture, rural infrastructure investment, and shock-responsive food security systems. The strong persistence of growth stability implies that once instability becomes entrenched, reversing it requires sustained structural interventions rather than short-term sectoral policies.

Keywords: Agricultural Production; Economic Growth Volatility; Macroeconomic Resilience; Climate Change; Fixed Effects Panel; Developing Countries