MACRO: The Macroeconomic Impact of Agricultural Input Subsidies; Dr Karol Mazur (Peking University, HSBC Business School)

Abstract

Governments worldwide operate agricultural input subsidy programs to stimulate local agricultural productivity and foster food security. We evaluate Malawi’s Farm Input Subsidy Program using a general equilibrium model with heterogeneous households, wealth accumulation, financial frictions, occupational choice, and transaction costs introducing food security concerns. While this generous program decreases undernutrition, it also reduces welfare by exacerbating existing misallocation and redistributing resources toward the wealthier urban population. We show that halving the subsidy rate or re-channeling public spending into broader infrastructure investments can increase welfare relative to an economy without subsidy. We highlight that expanding the partial equilibrium policy evaluation by the general equilibrium effects significantly alters the quantitative conclusions drawn. Finally, we show that the microdata for Malawi and cross-country data from Sub-Saharan Africa are consistent with our model.

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