Abstract of the paper
The potential benefits of providing subsidized inputs to farm-households in developing countries may reach well beyond the targeted households. More specifically, increased food production and demand for rural labor may benefit poor households through lower food prices and higher rural wages. However, two recent studies of a large input subsidy program in Malawi find that these effects are smaller than expected based on anecdotal evidence and previous studies using simulation models.
In this paper we provide a potential explanation for this finding by using six farm-household programming models to show how market imperfections limit households' ability to take advantage of cheaper inputs. Our findings suggest that input subsidy programs could be combined with improved market infrastructure and market access in order to increase non-beneficiary households' benefits from input subsidies.