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Impact of rural income transfer schemes in Ethiopia: a recursive dynamic comptable general equilibrium approach

Abstract: 

Variety of transfer schemes, ranging from input subsidy to direct cash and food transfers, have been used to alleviate acute poverty and food insecurity problems of the Ethiopian rural poor. However, there is an ongoing debate on the relevance and effectiveness of the schemes. This calls for a comprehensive economy wide study of such rural social protection programs. This study used a recursive dynamic computable general equilibrium model to analyze economy wide effects of cash transfers, food transfers and fertilizer subsidy. The simulation experiments show that the three transfer scenarios have positive effects on absorption and private consumption. Despite this, they crowd out private investment. While fertilizer subsidy reduced prices of major staples, cash and food transfers put an upward pressure on cereal prices, invalidating the existence of “price depressing effect”, in the case of partially locally procured food transfers. It is also observed thatdirect transfer policies dominate the subsidy based policy in terms of their effect in redistributing income and welfare in favour of targeted households. Fertilizer subsidy, on the other hand, uniformly raised welfare of all household categories, having little effect on income distribution. Besides, all the three policy scenarios positively affect consumption of major staples by the rural poor. But, comparatively speaking, direct transfer scenarios dominate fertilizer subsidy in terms of their effect in increasing consumption of rural poor households. Accordingly, the study urges policy makers to plan parallel programs to deal with investment discouraging and inflationary effects of direct transfer programs and to consider fertilizer subsidies as potential social protection programs both for the urban and the rural poor.

Corporate Author: 
Getnet Alemu, Worku Gebeyehu, Demirew Getachew (Editors) & Ethiopian Economic Association (EEA)
Publisher: 
Ethiopian Economic Association (EEA
ISBN/ISSN: 
978-99944-54-37-2
Primary Descriptors: 

Income

Secondary Descriptor: 

Food Security 

Geographic Descriptors: 
Ethiopia
Cataloge Date: 
03/11/2015
Broad Subject heading: 
Poverty
Call Number: 
330.963 PRO 2014
Serial Key Title: 
Proceedings of the Eleventh International Conference on the Ethiopian Economy
Publication catagory: 
Content type: 
Volume: 
I
Publication date: 
2014-06-02 00:00:00
Forum or Discussion date: 
2013-07-17 00:00:00
Place of publication: 
Addis Ababa, Ethiopia
Type of material: 
Book
Current frequency: 
Annually