Sunday, February 23, 2014

Malawi's fertilizer subsidies

A new book has come out analyzing the economic results of Malawi's fertilizer subsidy policy.  This policy has received a lot of attention since its inception in 2005, first because it flew in the face of neoliberal thinking, then because it actually seemed to be working well, and later on because, at least in 2008/2009, the high cost of fertilizer made the program appear to be teetering on the edge of collapse. 

Far from the simplistic pro- vs. anti-free market platitudes often offered up in relation to this program, this book gives a very wide-ranging, well-thought analysis of the effects of fertilizer subsidies on the entire Malawian economy.  The authors conclude that the program has generally been a success, with a benefit/cost ratio of about 1.35, meaning that the benefits accruing to the economy are about 35% more than the costs incurred in the program.  I am not quite sure what they mean by "fiscal efficiency", because the 0.6 they report as a good result would not in fact be good if this were calculated as net present value divided by government expenditure.  I have to believe from skimming through the book and other writings that the authors' definition of fiscal efficiency is in fact (NPV/government expenditure)-1, which would validate their positive assessment of the program.  If my interpretation is right, for every dollar spent by the Malawian government on the subsidy program, the authors' fiscal efficiency numbers would indicate that it generated $1.60 in value for the economy. 

I have not read through the entire book, but it looks like a valuable addition to the discussion about how useful a tool fertilizer subsidy policies are.

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