The Local Impacts of Agricultural Subsidies: Evidence from the Canadian Prairies

We estimate the impact of removing an export subsidy on the local economies of Alberta, Saskatchewan and Manitoba, exploiting the large regional variation of a 1995 reform. We find that the loss of the subsidy resulted in significantly lower farm value-added, farm asset values and local non-farm employment. The results suggest that the subsidy removal had detrimental spillover effects on the local nonagricultural economy that varied spatially across the Prairies. The point estimates suggest that the marginal effect of the subsidy loss on non-agricultural employment was five times as large as those obtained from traditional estimates of the multiplier effect.