The Multiplier Effect

The Multiplier EffectSince its inception in 2003, the USAID West Africa Trade Hub has facilitated over $100 million in exports from West Africa, but its impact is arguably greater – because the $100 million in exports has multiple impacts in the West African economy. Economists have developed measures for these multiple impacts which they refer to as a multiplier effect. In actual reality, this means that the impact of the $100 million in exports is much greater: it not only is household income going directly to agricultural producers, basket makers, and other artisans, it is also new income to those working for companies engaged in processing and exports. All these participants in the value chain then spend their new income in the local economy, which generates multiples of economic activity onwards.

Diagram showing the multiplier effect for West Africa

In 2009, the USAID Trade Hub commissioned Dr. Daniel Bromley, the Anderson-Bascom professor of applied economics at the University of Wisconsin-Madison, to conduct a multiplier effect study in order to determine the impact on West Africa’s economy of increasing exports from three sectors: cashew, shea and handcrafts (baskets and wood products). The study, completed in close collaboration with economists at the University of Ghana with support from U.S. Peace Corps Volunteers, concludes the following impacts of increased exports:

  • For cashew, $1,000 of farm sales creates 120 new jobs and $1,430 in additional income in the local economy
  • For baskets, $1,000 of sales creates 160 new jobs and $580 in additional income in the local economy
  • For wood products, $1,000 of sales creates 100 new jobs and $1,150 in additional income in the local economy
  • For shea, $1,000 of sales generates $580 in additional income in the local economy.

Download the multiplier effect study here.

Read a Tradewinds article written by Dr Bromley on economic coherence in West Africa.

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