Does Food Aid Have Disincentive Effects on Local Production? A General Equilibrium Perspective in Ethiopia,” Food Policy 32

Abstract: This paper examined impacts of food aid on domestic food production employing a computable general equilibrium modelling technique and using data from Ethiopia. The simulation experiments have shown that food aid has unambiguous disincentive effects on domestic food production. The removal of food aid caused a modest increase in food prices but this stimulated food production. Employment and income generation effects of the latter outweighed the adverse effect of the former. Consequently, the removal of food aid led to improvements in aggregate household welfare. Contrary to some concerns in the food aid literature that any reduction in food aid would hurt the poor, the simulation experiments suggested that actually poor rural household and urban wage earners are the ones who benefit most in absence of food aid but entrepreneurs are more likely to encounter a marginal welfare decline. We have distinguished between in-kind food aid and cash equivalent transfers in order to isolate the disincentives that in-kind transfers would make to domestic production from those that are related to household purchasing power problem. The expansionary effect of removing food aid becomes significantl