Investing Cash Transfers To Raise Long Term Living Standards

Abstract

In this paper we test whether poor households use cash transfers to invest in income generating activities that they otherwise would not have been able to do. Using data from a controlled randomized experiment, we find that transfers from the OPORTUNIDADES program to households in rural Mexico resulted in increased investment in micro-enterprise and agricultural activities. For each peso transferred, beneficiary households used 88 cents to purchase consumption goods and services, and invested the rest. The investments improved the household's ability to generate income with an estimated rate of return of 17.55%, suggesting that these households were both liquidity and credit constrained. By investing transfers to raise income, beneficiary households were able to increase their consumption by 34% after five and a half years in the program. These results suggest that cash transfers to the poor may raise long-term living standards, which are maintained after program benefits end. JEL Codes: I38, D12, D13, O12 Keywords: conditional cash transfer programs, randomized experiment, long run living standards, agricultural investments, micro-enterprise activity, liquidity and credit constraints.

Alleviating extreme poverty in Chile: the short term effects of Chile Solidario

“…Both types of approaches show gains in human capital indicators with increased health and education visits. Gertler et al (2005) provide preliminary evidence that some of the substantial cash transfer received by Mexican families in the context of Progresa (now Oportunidades) has been saved and used to finance in micro-enterprise activities and increased investments in farm assets and agricultural activities.…”

Poverty and Immigration Policy

“…Like remittances, cash transfers are not only spent on consumption. One study of the Mexican Oportunidades program, for instance, found that for every peso a recipient spent, 26 cents were invested, increasing agricultural income by 10 per cent after 18 months (Gertler et al, 2012). Also like remittances, there is evidence that cash transfers yield benefits for non-recipients (Angelucci and Giorgi, 2009).…”

Social Protection and Climate Change

“…Cash transfers have been shown to encourage a diverse array of profitable investments that have allowed households to increase their asset base. These include investments in high-yield seed varieties in Ethiopia and India (Sabates-Wheeler et al, 2008;Gilligan et al, 2009), in micro-enterprise activities (Gertler et al, 2005;Neves et al, 2009), livestock (Schuring, 2009;Chiwele, 2010) and general agricultural investment (Martinez 2004;Soares et al, 2008).…”