The Economy-wide Impacts and Risks of Malawi's Farm Input Subsidy Program

Program evaluations often overlook economywide spillovers and constraints. We estimate the impact of Malawi’s Farm Input Subsidy Program using a computable general equilibrium model informed by household-level studies. We find that indirect benefits account for about two-fifths of total benefits, underscoring the complementarity between economywide and survey-based program evaluations. Benefit-cost ratios fall when domestic taxes finance the program or when real fertilizer prices rise. Abstracting from very strong weather events, we find that Malawi’s program potentially generates double-dividends in the form of higher and more drought-resilient yields. Overall, using parameters similar to survey-based evaluations, we identify mostly positive economywide returns over a range of program designs and risks. However, similar to earlier evaluations, benefit-cost ratios depend strongly on assumptions about fertilizer dose-response rates; and the dose-response rates from ex post survey-based studies generate benefit-cost ratios less than one even when indirect program benefits are included.