Economy-wide effects of input subsidies in Malawi : market imperfections and household heterogeneity
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The potential beneﬁts of providing subsidized inputs to farm-households in developing countries may reach well beyond the targeted households. More speciﬁcally, increased food productionand demand for rural labor may beneﬁt poor households through lower food prices and higherrural wages. However, two recent studies of a large input subsidy program in Malawi ﬁnd thatthese eﬀects are smaller than expected based on anecdotal evidence and previous studies usingsimulation models. In this paper we provide a potential explanation for this ﬁnding by usingsix farm-household programming models to show how market imperfections limit households’ability to take advantage of cheaper inputs. Our ﬁndings suggest that input subsidy programscould be combined with improved market infrastructure and market access in order to increasenon-beneﬁciary households’ beneﬁts from input subsidies.