lime supplements for better soil management (Smale and Theriault, 2018). Blanket recommendations and subsidy programs that heavily focus on nitrogen without careful attention to soil or agronomic conditions can thus fail to address the relevant limiting factors for plant growth specific to local contexts (Smale and Theriault, 2018).<sup>10</sup> Yet, despite the ubiquity of fertilizer subsidies as an agricultural policy tool and the magnitude of resources devoted to them, little is known about their long-term impacts, or the externalities and waste imposed due to their ineffective use (Gautam et al., 2022). Lopsided subsidies for fertilizers which substantially lower the prices of nitrogen relative to other nutrients can promote inefficient and ineffective use. Such excess use and inefficiencies in application means that not all of the nitrogen that is applied on fields gets absorbed by crops. This is because there is a limit to how much a plant can produce based on nitrogen alone.<sup>11</sup> Due to the unique chemistry of the nitrogen cycle, the remaining excess of reactive nitrogen then gets lost to the surrounding environment in its multiple chemical forms—as nitrites and nitrates polluting the waterways; as anhydrous ammonia or nitrogen oxide negatively impacting air quality; and as nitrous oxide, exacerbating climate change and stratospheric ozone depletion (Kanter 2018).<sup>12</sup> Using disaggregated grid cell-level datasets on nitrogen fertilizer, yields and water quality, combined with administrative data on subsidies from 1995-2013 covering about 150 countries, the paper highlights these unintended but significant long-term costs of fertilizer subsidies. In doing so, the results focus on how ineffective application of nitrogen fertilizer can hurt agricultural productivity as well as impair freshwater resources.

The rest of the paper is organized as follows. Section 2 describes the data and empirical strategy used in this analysis. Section 3 presents the main results demonstrating the impact of nitrogen fertilizer on agricultural productivity, and pollution in the waterways along with the overall impact of subsidies. Finally, Section 4 concludes with policy implications and discusses the way forward.

# 2. Data and Empirical Strategy

To study the impact of nitrogen fertilizer on agricultural productivity, the paper uses a grid cell-level data set covering the entire world. For the analysis, the land area is split into grid cells measuring 0.5 degrees on each side, which is approximately 56 × 56 kilometers at the equator. The sample period extends from 2000 to 2013. The following equation is estimated at the global scale:

> 10 Due to the heavy focus on urea, studies have shown that the Mali subsidy program failed to address the more limiting factor for crop growth, which in some cases was phosphorus rather than nitrogen (Smale and Thériault, 2018). Similarly, a Tanzania field study that conducted soil testing found that sulfur was deficient in all the plots and remained a critical limiting factor for growth in maize yields. Yet, national fertilizer recommendations mandated by the government did not include sulfur (Harou et al., 2021).

> 11 Fertilizers are essential for plant growth but beyond a point, adding more fertilizer may not be able to boost yield.

> 12 For this reason, the fallout of nitrogen pollution is considered one of the most important environmental issues of the twentyfirst century (Kanter 2018). Recent estimates suggest that nitrogen may be the world’s largest global externality, even surpassing carbon (Keeler et al. 2016).

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