The Effect of Transnational Farmland Investments on the Ghanaian Economy

Abstract

Transnational investments in farmland in countries where agriculture is a relatively large share of the economy are recent and controversial. Some economists view these investments as developmental opportunities including capital deepening, new technology, and employment opportunities. Others view these investments as land grabs, emphasizing the dislocation of local farmers and insufficient compensation for land use. However, these views are not based on structural growth model analyses. This research investigates how these seemingly conflicting effects interact with each other in the process of economic growth by fitting a dynamic general equilibrium model to Ghanaian data. Capital and land markets are modeled to be segmented between domestic and foreign agents. The differing effects of two common foreign investment activities, grain farming and biofuel production, are investigated. Both entail the displacement of local capital and labor in agriculture, which has economy-wide effects over time. Grain farming investments tend to promote capital accumulation and increase income and consumption over the transition, whereas labor income is adversely affected. Biofuel projects induce the reverse. Results suggest that the current predominance of foreign investment in biofuel production is likely to increase labor income and household welfare, measured by consumption level, yet leads to a decline in national income in the long run. Results identify the relative labor intensity of technology on foreign-operated farms, which affects the returns to domestic capital and the pace of capital deepening, as a major determinant of the long-term effect of farmland investments.