Understanding growth mechanism through agriculture and agro-industry investment: A micro-funded DSGE model applied to Benin

Benin GDP growth was respectively 2.1%, 4.0%, 5.6% and 6% from 2015 to 2018 (World Bank 2018). Despite this positive performance of the economy over the last decade, population below poverty line was 36.2% and GINI index of Benin increased from 38.6 in 2003 to 47.8 in 2015, growing at an average annual rate of 11.29%. This unequal distribution of the wealth can be resolved through a system of integrated growth, by fully exploiting high potential sectors such as agriculture and agro-industry in order to avoid a deterioration of the situation of the vulnerable households. This paper examines the impact of alternative growth paths through investments in agriculture and agro-industry sectors combined. We use a micro funded DSGE Model associated with the Social Accounting Matrix (SAM) of Benin of the year 2013 where we simulate anincrease of 75% of capital in the agriculture and agro-industry sectors from 2017 to 2022. The results of the model indicate an increase of the GDP by almost 6% per year during the period of investment that will continue to increase after 2021. In addition, this induce more production in agriculture (average yearly growth of 6 %) and agro industry sectors (average yearly growth of 11%) and also other sectors as nancial services, transport and trade and ameliorate the wellbeing of the society as a whole.