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

This article investigates the dynamic effects of cash and food transfers on local prices. Leveraging the progressive roll-out of Africa’s largest public work program, Ethiopia’s Productive Safety Net Program, I estimate transfer effects on monthly market price between 2001 and 2015. Combining datasets on local prices, local agricultural production, and program implementation, I test whether effects vary between these transfers. While cash transfers lead to a 5% price increase, price responses are negative and imprecisely estimated for food transfers. This result hides considerable heterogeneity. Cereal and legumes, the food items transferred, experience significant price reductions in locations receiving in-kind transfers. These effects are driven by more intensely treated, isolated, and least productive districts. I can recover transfer elasticity by using the transfer share in district expenditures as a treatment intensity variable. I find a 1.02 and -0.82 for districts that mainly receive cash and food transfers: a one percentage point increase in the transfers share in district expenditures leads to a 1.02% price increase and 0.82% price decrease in cash-dominant and food-dominant districts. Lastly, cash transfers facilitate supply response through production increases, mitigating the price effects observed.