The Impact of Fertilizer Subsidies on National Fertilizer Use: An Example from Malawi

This paper examines the impact of government funded fertilizer subsidize on national level fertilizer use. We use panel data to investigate how the 2006/07 fertilizer subsidy program in Malawi impacted farmers' decisions to purchase commercial fertilizer. Using a fixed effects estimator to control for time invariant unobservables, we find that when farmers' ability to acquire subsidized fertilizer is treated as exogenous, it has a significant negative impact on commercial fertilizer purchases. We also find that wealth and social networks have a significantly positive impact on who receives subsidized fertilizer. We then use instrumental variables to control for the endogeneity of subsidized fertilizer acquisition affecting commercial purchases. Using a fixed effects estimator on this model demonstrates that acquiring subsidized fertilizer does not have a significant impact on commercial purchases.