This document summarizes research on evaluating the economy-wide effects of Ethiopia's Productive Safety Net Program (PSNP) at both the local and national levels. At the local level, the researchers used a Local Economy-Wide Impact Evaluation (LEWIE) model in 8 kebeles to estimate the effects of PSNP cash transfers and public works projects on output, incomes, and welfare. At the national level, they used a Computable General Equilibrium (CGE) model to estimate PSNP's effects on production, incomes, consumption, trade and GDP across Ethiopia. The analysis found that PSNP increased local and national economic activity beyond direct beneficiaries, with total benefits exceeding total costs. PSNP was estimated to

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Economy-wide Effects of PSNP in the
Small and in the Large
Mateusz Filipski2 ; Getachew Ahmed Abegaz1,2; Tadele Ferede3
J. Edward Taylor4 ; Xinshen Diao2 ; Alemayehu Seyoum Taffesse1,2
1: IFPRI ESSP 2 :IFPRI DSGD 3 : Addis Ababa University 4: UC-Davis
Transformation and vulnerability in Ethiopia: New evidence to
inform policy and investments
Getfam Hotel, Addis Ababa
May 27, 2016
Addis Ababa
1

2. 2
Motivation
• PSNP has two components: Cash Transfer (CT) and Public
Works (PW)
– Soil & water conservation (SWC), Irrigation, Roads, Schools,
Clinics…
• Most evaluation focuses on recipient households
• But impacts may spread far beyond recipients:
– Cash Recipients spend their money within their economy
– Public works affect agro-ecological and economic environment
 Need to evaluate the FULL impact
 We evaluate full impacts locally, and nationwide

3. 3
2-step evaluation
• Step 1: Local impacts: “LEWIE” model
– Local Economy-Wide Impact Evaluation: Kebele scale
– Provides detail
• Step 2: National impacts: CGE model
– Computable General Equilibrium: National scale
– Provides the big picture
• Both rely on results from Econometric estimations
– Estimates the average impacts of PW projects on production
– Grounds simulations in reality

4. Economy-wide Modeling
• System of equations defining all economic flows
– Production output, factor and input demands
– Household incomes and expenditures
– Trade flows
– Taxes and transfers
– Etc.
• Can model the full impact of a shock
• Applicable to economy of any scale
– Sub-national level: Kebele
– Country-wide 4

5. 5
From econometrics to simulations
• Econometric Results:
– Grain yields: +2.8% per year (SWC projects)
– Vegetable yield: +12% per year (Irrigation projects)
=> Change parameters of the model to simulate yield
increases
• In addition, cash transfer represents 18% of
incomes for recipients
=> Change parameters of the model to simulate income
transfer
• Model solves for “full impact”

6. 6
PSNP
Cash transfers
Productivity
Direct impact
Yield estimates,
Transfers
Econometrics
and Statistics
National
CGE model
LEWIE
models
Local GE Impacts
Production, Incomes,
Consumption, Wages,
Market sales
etc.
National GE
Impacts
Production, Incomes,
Consumption, Wages,
Trade, GDP
etc.

7. 7
Step 1 – Local impacts
LEWIE modeling

8. Cash
transfer
Rest of
Zimbabwe
RestofWorld
Treatment
household
Market
Rest of
the country
Other
village

9. Public
Works
Rest of
Zimbabwe
RestofWorld
PSNP village
Other
village
Market
Rest of
the country
Village-wide
yield shock

10. 10
Enderta (Lemlem & Felege Mayat)
Ambasel (Joro Geta & Kolet)
Fentale (Lege Benti & Fate Ledi)
Shebedino (Fura & Rameda)

11. Different Settings, Different Projects
11
Region Tigray Amhara Oromia SNNP
Woreda Enderta Ambasel Fentale Shebedino
Area (1000
ha)
147 90.2 124 24.5
Pop (2007) 114,297 121,899 81,740 233,922
Climate Short rainy season. Short rainy season. Very short rainy season.
Hot and dry.
Long rainy season (9
months).
Agro-
ecology
Mainly rainfed
agriculture, with ome
irrigation from diverted
rivers.
Very drought prone.
Mainly rainfed agriculture,
with irrigation from diverted
rivers.
Somewhat drought prone.
Flooding a major issue in rainy
season.
Roads often impassable due to
water.
Virturally no rainfed
agriculture.
Livestock the primary
agricultural activity.
Lush tropical vegetation.
Frequent flooding.
Roads often impassable
due water.
Kebele Lemlem Felege
Mayat
Joro Geta Kolet Lege Benti Fate Ledi Fura Rameda
Landscape Dry and
rocky
land.
Villages in
“canyons”
where
rivers flow
Dry and
rocky, but
greener
and hillier
than
Lemlem.
Mountainous.
Steep slopes.
Crossed by
seasonal
rivers.
Mountainous.
Steep slopes.
Rift valley.
Small hills
and large
plains.
Rift valley.
Small hills
and large
plains.
Hilly. Red
clay earth.
Rainwater
gullies.
Hilly. Red
clay earth.
Rainwater
gullies.
Main
activities
Crops Crops Crops Crops Livestock Livestock Crops Crops
Main PSNP
projects
SWC
Roads
School
SWC
Roads
School
SWC
(includes
flood levees)
Tree-planting
Road
Road
SWC
SWC
Tree-
plating
Water
harvesting
Roads
Roads
SWC
Tree
planting
Irrigation
Roads
SWC
Irrigation
Roads
SWC
Water
Harvesting

12. 12
Shocks we simulate
• 2.8 % increase in grain yields (from SWC)
• 12% increase in vegetable yields (from irrigation)
• 18% transfer income for PSNP recipient households
• Model simulates the local impact in a single year of PSNP
• Starts from a 2006 baseline

13. Local Production Increases More in Some Regions
Than Others
(*Agricultural production, retail, services, other; share of Ag ranges 0-80%)
13
Next question: Does this translate to higher
incomes?
0
2
4
6
8
10
12
14
16
Fate Ledi Lege Benti Kolet Fura Rameda Felege
Mayat
Lemlem Joro Geta
PSNP impacts on total output (%)*

14. Local Income Multipliers Range from 1 to Almost 2.5
Birr per Birr Transferred
14
Next question: who gets these benefits?
0
0.5
1
1.5
2
2.5
3
Lege Benti Fura Fate Ledi Felege Mayat Kolet Lemlem Rameda Joro Geta
Increase in income per birr of transfer
Amount of transfer Additional gains

15. Most Local Spillovers Go to Non-beneficiaries
15
-5
0
5
10
15
20
25
30
35
40
45
Fate Ledi Lege Benti Kole Fura Rameda Felege
Mayat
Lemlem Joro Geta
% increase in real income, by household type
Non-recipients Public Works Recipients Direct Support Recipients

16. 16
Benefits Spill Out into Rest of Ethiopia

17. 17
Summary: Results at the Local Level
• PSNP increased output in all Kebeles
– Because of increased yields and increased demand
– Agriculture, retail, services, etc.
• Non-recipients also benefit (positive spillovers)
– Public works potentially benefit all
– Non-recipients tend to own capital (ex: retail)
• Impacts vary across kebeles
– Structure of the economy matters
• Benefits spill out from kebele to rest if country, but
are not lost: they contribute to the national economy
• We have to cast our net more widely to capture them

18. 18
Step 2 – National Impacts
CGE modeling

19. LEWIE models CGE Model
Kebele level
(8 such models)
National
Distinguishes PSNP recipients from
Non-recipients
Distinguishes PSNP areas
from non-PSNP areas
Household data and case studies Data from national accounts
15 commodities
5 factors
3 household types
69 commodities
20 factor types
20 household types
4 agro-climatic zones
Same simulations Same simulations
1-year 1-year
19
Comparing models

20. 20
Shocks We Simulate (Same as in Local
Analysis)
• 2.8 % increase in grain yields (from SWC)
• 12 % increase in vegetable yields (from irrigation)
• 18 % transfer income for PSNP recipient households
(=3.7% for the PSNP area)
Average
impact
Lower
bound
Upper
bound
Impact of a SWC project
on overall grain yields
2.8% 2.1% 3.5%
Impacts of irrigation on
vegetable yields
12% 7% 17%
Share of PSNP transfer in
the income of
beneficiaries
18% 11% 27%

21. 21
National Production Increases
0.76
1.33
2.91
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
All Agriculture Grains
% increase in output

22. 22
National Household Incomes Rise
0
1
2
3
4
5
6
7
All PSNP areas Non-PSNP areas
% change in Household Income

23. 23
PSNP Raises National GDP by 1%
0.68%
0.99%
1.36%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
Real GDP
% Real GDP Increase
Low scenario Average scenario High scenario

24. 24
Recap
• Nationwide economic impact of PSNP is far from trivial
– 0.99% real GDP increase (bounds at 0.68% – 1.36%)
– Cost of PSNP is about 1-2% of GDP (1.4% in our model)
– PSNP creates new value added roughly equal to half of the
amount transferred
• More than is expected from a simple safety net
– Finding the “P” in PSNP

25. Benefits exceed costs
25
1.37% 1.37%
0.99%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
Cost Benefit
% of GDP
Cost of transfer Value created

26. Donors currently bear most of the cost
26
0.14% 0.14%
1.23% 1.23%
0.99%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
Cost Benefit
% of GDP
GOE cost Donor cost value created

27. 27
PSNP also has non-monetary impacts
Recipients
Monetary
(incomes,
production)
Non-monetary
(Health, Food
security)
Everyone else
We are just starting to think about evaluating long-term economic impacts
(UNICEF Tigray SCTPP and UNICEF-FAO Lesotho CGP studies)
NEW!

28. 28
Conclusions
• PSNP has far-reaching impacts
– Benefits from combining Protection + Production
– Stimulates supply and demand simultaneously
– Need General Equilibrium framework to reveal full benefits
• Local impacts are positive but differ across area
– We have the LEWIE tool to analyze those impacts
– Depend critically on the structure of the local economy
• Nationwide PSNP generates significant growth
– Even in non-PSNP regions
• Total benefits exceed total costs

29. 29
Thank You!

30. 30
Supplemental Slides

31. 31
Economic structure shapes results
0
0.5
1
1.5
2
2.5
0.25 0.30 0.35 0.40 0.45 0.50 0.55
ProductionMultiplier
Market integration index
Output increase per Birr or transfer