This paper examines how government policies and institutional arrangements affect rural welfare outcomes. Reviewing the Philippine experience, it shows that inappropriate policies and institutions stifle the response of the rural sector to agricultural growth, with adverse effects on the rural poor and overall economic development. Besides economic growth, policies that foster rural infrastructure, favorable agricultural terms of trade, and agrarian reform lead to poverty reduction. However, weak institutions slow the implementation of agrarian reform. Thus, unless agrarian reform can be achieved swiftly, rural development strategies should better focus on investments in physical and social infrastructures, research and technology transfer, SME development, and enforcement of contracts.
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