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This article examines the relative effectiveness of cash and in‐kind food aid, using an economy‐wide modelling framework and a social accounting matrix constructed for Ethiopia. It argues that cash aid has larger positive effects on household welfare, with multiplier effects on households other than direct recipients, and that food aid provides a disincentive to local food production. However, where cash transfers cause food prices to rise, welfare losses may be suffered by those who are neither targeted nor beneficiaries. The highly aggregated nature of the model allows only a tentative policy recommendation in favour of cash transfers.

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