The Impact of Agricultural Input Subsidy on Productivity: The Case of Ghana

Studies on agricultural input subsidy (AIS) have focused on its causal effect on food production without recourse to impact on production based on the level of AIS. This paper estimates the effect of increased AIS on agricultural productivity and the heterogeneity of the effect based on farm size, using data from 285 beneficiaries of Ghana’s AIS program. We employ the Generalized Propensity Score matching approach to address potential self-selection bias due to farmers’ decision to participate in AIS. We find that agricultural productivity increases as farmers’ level of AIS increases. The estimated effect of AIS on productivity is higher for small-scale farmers than large-scale farmers. Nonetheless, a minimum level of AIS is required for small-scale farmers to achieve positive effects. Higher productivity growth can be achieved if AIS is targeted and disbursed based on farm size rather than the “one rate for all” disbursement approach often used in Sub-Saharan Africa.