4 policy. Modeling the import ban as a strict QR that drives fertilizer imports to zero, we compute a new equilibrium with all GE adjustments, including in labor markets, goods markets, and tax rates. In this new equilibrium, fertilizer use in Sri Lankan agriculture falls by 96.5%, with crop yield declines ranging from 12% for cinnamon to 54% for maize, reflecting each crop’s fertilizer intensity.<sup>10</sup> The ensuing output contraction drives a decrease of 596 million US dollars (USD) in agricultural exports, severely limiting the ban’s (presumed) objective of saving foreign exchange. The resulting average welfare losses are equivalent to a 7.33% income reduction, but incidence is highly heterogeneous. Mobile workers—who can reallocate across sectors—sustain losses averaging 0.67% and not exceeding 12%, even in the worst-affected, most agricultural districts, where the “buffer” provided by manufacturing employment is smallest. In contrast, farmers—whose source of income is intrinsically tied to the agricultural sector—face losses averaging 19.51% and ranging from 9% to 23% depending on geographic location. This substantial spatial variation in farmer losses reflects regional differences in crop specialization and crops’ varying degrees of fertilizer intensity.<sup>11</sup> To disentangle the GE and PE mechanisms driving the ban’s effects, we combine model-derived analytical expressions for yield elasticities with the model’s quantitative predictions for changes in wages, output prices, and fertilizer prices. In GE, the ban indirectly reduces wages—via reduced agricultural labor demand—and raises crop prices—via reduced crop supply, whereas in PE these price adjustments are suppressed, with only fertilizer prices rising. Our main result is that cropyield elasticities with respect to fertilizer are 21–49% lower in GE than in PE, as a result of which the production decline in maize and rice are attenuated by 35% and 39% (respectively) in GE relative to PE. Intuitively, lower wages and higher output prices incentivize agricultural producers to expand labor input, partially offsetting the initial production losses from fertilizer price hikes. Our PE elasticities are very close in values to Carter et al. (2021) and Beaman et al. (2013), further validating the model. These results imply that extrapolations based on PE elasticities from small-scale experimental studies systematically overestimate the adverse effects of large-scale input shocks, underscoring the importance of GE mechanisms that extend well beyond the input market in shaping the aggregate consequences of nationwide supply disruptions.

Finally, we analyze how different features of developing countries that we model matter for welfare. Without non-homothetic preferences, the model underpredicts the size of the agricultural sector at baseline, leading to an underestimation of the ban’s negative effects on mobile workers. The subsidy program functions as an implicit income transfer scheme from mobile workers to farmers, so the model without subsidies overestimates ban-induced worker losses (and underestimates

> 10The existence of a small domestic fertilizer production sector ensures that, even under a full import ban, fertilizer use in agriculture does not fall to zero.

> 11The regional pattern of post-ban income losses predicted by the model replicates 82% of the corresponding pattern implied by nightlights data (7.7 p.p.), supporting the model’s validity.