Local economy-wide impact evaluation (LEWIE)

There is a rich tradition in economics of using micro survey data to construct models of agricultural households that are both producers and consumers of food (Singh et al. 1986). LEWIE begins by estimating household-farm models for programme eligible and ineligible household groups, then it “nests” these models within a general-equilibrium model of a region of interest. The household models describe each group’s productive activities, income sources, and consumption expenditure patterns. In a typical model, households participate in activities such as crop and livestock production, retail, and other business activities, as well as in the labour market. Productive activities combine various factors (e.g., hired labour, family labour, land, capital) and intermediate inputs (fertilizer, seed, and a variety of purchased inputs) to produce an output (crop harvest, livestock-by-products, a service), which may be consumed by the household or sold to others. Production functions are estimated for each activity and household group econometrically, using microdata.

Household groups can purchase goods and services locally or outside the region. Beneficiaries create spillovers to non-beneficiaries by spending cash on the goods and services non-beneficiaries provide. Non-beneficiaries create spillovers to both beneficiaries and other non-beneficiaries by spending their income on goods and services other households provide. Survey data are used to estimate econometrically how changes in income affect expenditures by both beneficiary and non-beneficiary households.

Local trade links households within a village, and regional trade links villages to each other and to regional commercial centres. The whole region also interacts with the rest of the country, importing and exporting goods and possibly selling labour. Equations in the LEWIE model ensure that prices adjust to clear markets for goods and services not traded with outside markets (nontradables), and that trade adjusts to clear the markets for goods traded with outside markets (tradables).