Agricultural Spillover Effects of Cash Transfers: What Does LEWIE Have to Say?

Abstract

LEWIE simulations suggest that there are positive production spillovers fromSCTprograms. In nominal terms, total production multipliers are always significantly greater than zero, and income multipliers are always greater than one. However, real impacts depend on supply elasticities and market closure assumptions. To date, studies do not point to inflationary impacts of SCTs (OPM 2012a; OPM 2012b), although the evidence on price effects is very limited. This suggests that Simulation 2 best characterizes the production impacts of SCTs, which target poor economies with under-utilized factors. This simulation reveals a minimal inflationary impact and real production value-added multipliers of 1.58 Ksh per shilling transferred. A key finding of LEWIE is that the production impacts are concentrated in nonbeneficiary households. This is not surprising given the program’s eligibility criteria, which target the most asset- and labor-constrained households. RCTs focusing on treated households are likely to miss many or most of the productive impacts of social cash transfer programs. This finding reaffirms the importance of a local economy-wide approach if we wish to capture the transfers’ full impact. Finally, our findings underline the importance of local supply constraints in shaping the impacts of transfer programs. In the high unemployment environment characterizing rural Kenya, we believe it unlikely that there are significant labor constraints on production. Nevertheless, production constraints limit program benefits, particularly in nonbeneficiary households, which are far and away the main source of new supply. When production bottlenecks generate inflation, transfers may even negatively affect some households. Interventions focusing on local production constraints in nonbeneficiary as well as beneficiary households may be needed to unlock the productive potential of SCTs.