The Effect of Government Subsidies on Farmer Productivity in Developing Countries

Government subsidies—particularly for fertilizer, seed, and credit—remain among the most widely used agricultural policy instruments in developing countries. This article reviews the empirical evidence on how such subsidies affect farmer productivity, examining both the theoretical rationale for intervention and the mixed results observed across Sub-Saharan Africa, South Asia, and other developing regions. While input subsidies can raise yields and correct market failures under specific conditions, their long-run productivity impact is frequently constrained by poor targeting, fiscal unsustainability, crowding-out of commercial input markets, and persistent technical inefficiency among smallholders.