General equilibrium effects of social policy: evidence from the Ethiopian Productive Safety Net Program

This article examines how cash versus in-kind transfers affect local prices using Ethiopia’s Productive Safety Net Program (PSNP), Africa’s largest public works initiative. Exploiting staggered implementation across districts, I analyze monthly market price data from 2001-2015 to identify causal effects. Cash transfers increase local prices by 5%, while food transfers produce negative but imprecise price responses. However, prices of distributed food items fall significantly in localities receiving in-kind transfers. Effects are strongest in districts with higher treatment intensity, geographic isolation, and lower agricultural productivity. A one percentage point increase in transfer share drives a 1.02% price increase in cash-dominant districts versus a 0.82% decrease in food-dominant districts. Several mechanisms are at play: cash transfers stimulate agricultural production, partially offsetting price inflation. However, these productivity gains entail welfare costs: children under five show higher rates of underweight and stunting in cash-dominant districts, suggesting that localized price increases compromise nutritional outcomes despite productivity improvements.