A Down Payment on ProgressMay 8th, 2012 | By Louise McLarnan
Paul J. Gertler, Sebastian W. Martinez, and Marta Rubio-Codina
American Economic Journal: Applied Economics. 2012.
Conditional cash transfer programs (CCTs) are an increasingly popular approach to development programming. Called ”the world’s favorite new anti-poverty device,” CCTs give low-income families regular cash payments conditional on certain behaviors, such as children’s school attendance, to alleviate the immediate symptoms of poverty and incentivize investment in human capital. International institutions and media observers alike have praised CCTs as an effective anti-poverty intervention.
Despite their popularity, critics have questioned the sustainability of CCTs, suggesting that cash transfers might create dependence without providing a long-term solution. Paul J. Gertler, Sebastian W. Martinez, and Marta Rubio-Codina evaluate this question in “Investing Cash Transfers to Raise Long-Term Living Standards.” They evaluate what happens when families are no longer eligible for CCT payments, finding that CCTs prompted “productive investment” in entrepreneurial activities and raised long-term standards of living.
The authors emphasize that, while other researchers have previously reported short-term benefits to CCTs – from increased school enrollment to higher caloric intake – there has been little research about the long-term effects of CCTs. Using data from a randomized evaluation of Oportunidades, a CCT program in Mexico, the authors examine how families spent their transfer payments over a five-year period.
Gertler, Martinez, and Rubio-Codina report that, on average, Oportunidades participants invested 24 cents per transferred peso, typically in productive activities such as agricultural production and other business enterprise. CCT participants “increased ownership of productive farm assets significantly faster than non-beneficiary households… [T]his resulted in significantly higher agricultural income.” For example, Oportunidades participants were 17 percent more likely to own drafts animals, such as horses or mules, as compared to non-participants.
According to the authors, such investment generated higher income and ultimately improved living standards. Moreover, CCT recipients’ household consumption was five percent higher, over the long-term, than non-recipients’ consumption levels. The authors conclude that
cash transfers appear to increase living standards permanently by facilitating investments in productive activities.
By focusing on agricultural investment, however, the authors do not address whether CCTs would be as beneficial in the long-term for people living in urban areas or for families working outside of the agricultural sector.
With all of the attention that CCT programs receive from development practitioners worldwide, long-term analysis is critical to understanding the value of expanding CCT programs. While many researchers have documented the immediate benefits of CCTs for families, Gertler, Martinez, and Rubio-Codina illustrate that investments of transfer funds can also lead to long-term gains.