Investing Cash Transfers to Raise Long-Term Living Standards

Abstract

Using data from a randomized experiment, we find that poor rural Mexican households invested part of their cash transfers from the Oportunidades program in productive assets, increasing agricultural income by almost 10 percent after 18 months of benefits. We estimate that for each peso transferred, households consume 74 cents and invest the rest, permanently increasing long-term consumption by about 1.6 cents. Results suggest that cash transfers can achieve long-term increases in consumption through investment in productive activities, thereby permitting beneficiary households to attain higher living standards that are sustained even after transitioning off the program. (JEL D14, H23, I38, O12)

Consumption and Investment in Resource Pooling Family Networks

“…Among connected households, the implied short-run MPC out of transfers is of comparable magnitude to other studies (Bhalla, 1979;Musgrove, 1979;Paxson, 1992;Gertler et al, 2012). Among connected households, the implied short-run MPC out of transfers is of comparable magnitude to other studies (Bhalla, 1979;Musgrove, 1979;Paxson, 1992;Gertler et al, 2012).…”

“…As in Gertler et al (2012), we find that connected households do not converge back to pre-programme poverty levels over this horizon. As in Gertler et al (2012), we find that connected households do not converge back to pre-programme poverty levels over this horizon.…”

“…Exploiting rainfall shocks,Paxson (1992) documents MPC 2 [0.56-0.84] for rice farmers in Thailand. Finally,Gertler et al (2012) report an MPC of 0.74 in the Progresa evaluation data when all eligibles are considered together: our results highlight the considerable heterogeneity in MPCs by household type that underlie this, and that this difference is best understood by considering both consumption and investment outcomes Albarran and Attanasio (2003). present evidence that private resource transfers are crowded-out by the receipt of Progresa transfers and so our implied MPC is likely an underestimate.© 2017 Royal Economic Society.…”

Cash Transfer Programme, Productive Activities and Labour Supply: Evidence from a Randomised Experiment in Kenya

“…These findings are consistent with some other findings in the literature. For instance in Latin America, the Mexican PROGRESA programme increases the probability of operating a non-farm microenterprise (Gertler et al, 2012; Todd et al, 2010). In South Africa, pension beneficiaries started or strengthened their own microenterprises (Du Toit and Neves, 2006).…”

“…However, there is relatively limited empirical evidence on the productive impact of cash transfer programmes, particularly in the African context. Todd et al (2010) and Gertler et al (2012) find that the Mexican PROGRESA programme led to increased land use, livestock ownership, crop production and agricultural expenditures and a greater likelihood of operating a microenterprise. Soares et al (2010) find from their analysis of a conditional cash transfer (CCT) programme in Paraguay that beneficiary households invested between 45–50 percent more in agricultural production and that the programme also increased the probability that households would acquire livestock by 6 percent.…”