Grain Markets and Large Social Transfers - An Analysis of Productive Safety Net Program in Ethiopia

In 2005, Ethiopia implemented a major new social transfer program, the Productive Safety Net Program (PSNP) that involves some form of work requirement in exchange for either cash or in‐kind transfers (or a mix of the two), with the composition of the transfers administratively set to be uniform throughout the administrative region (wareda). In this paper, we analyze monthly data on cereal prices over 12 years, comparing price movements for areas included in the PSNP with those outside the program. We find statistically significant convergence of prices between PSNP and non‐PSNP waredas over time, but that this convergence began well before the introduction of the PSNP program. This result suggests that the impact of cash transfers in non‐integrated PSNP woredas (which would tend to produce divergence of prices for woredas that are not integrated with non‐PSNP woredas) is not the dominant driver of these price movements. Rather, the observed convergence in prices suggests either that the effect of in‐kind transfers dominates (and that PSNP and non‐PSNP markets are not integrated) or that the convergence is caused by other factors (such as improved road infrastructure). Given that our co‐integration analysis shows that average prices of major cereals in these markets are co‐integrated, the implication is that on average the convergence is caused by other factors (most likely, infrastructure improvements). Further disaggregated analysis involving distinguishing between the levels of transfers, the size of wareda markets and their locations is required for more definitive and operationally useful conclusions, however.