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Cash transfers: What are they good for?

There is convincing evidence from a number of countries that cash transfers can reduce inequality and the depth or severity of poverty. For example, in Brazil a combination of cash transfer programmes accounted for 28 percent of the total fall in the Gini index (a summary measure of inequality) between 1995 and 2004….

Well-designed and implemented cash transfers help to strengthen household productivity and capacity for income generation. Small but reliable flows of transfer income have helped poor households to accumulate productive assets; avoid distress sales; obtain access to credit on better terms; and in some cases to diversify into higher risk, higher return activities. These intermediate outcomes help draw poor people into the market economy on terms that allow them to benefit from and contribute to growth.…

There is robust evidence from numerous countries that cash transfers have leveraged sizeable gains in access to health and education services…However, transfers have had less success in improving final outcomes in health or education.  Cash transfers can help the poor overcome demand-side (cost) barriers to schooling or healthcare, but they cannot resolve supply-side problems with service delivery (e.g. teacher performance or the training of public health professionals). Cash transfers therefore need to be complemented by ongoing sectoral strategies to improve service quality.

From a new paper on the evidence for cash transfers from Britain’s aid agency.

I’ve heard people talk about cash transfers as the next silver bullet. They’re frequently mentioned in conversations about what’s “new and innovative” in aid. Studies like this one, that synthesize what we know so far and point out where knowledge is still uneven, can help calibrate those expectations.

 

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11 Comments

  1. Alexander wrote:

    What a surprise. Alleviating poverty alleviates poverty.
    All aid efforts (project support, budget support, aid vouchers, cash transfers) aim at providing more financial leverage for the poor. How can someone imagine that the mean (cash transfers) could be worse than the end (having cash)?
    Most people that oppose direct cash transfers argue that poor people cant handle money that is given to them. Following this idea, one would have to stop all efforts, cause everyting targets more (financial) freedom.
    Credible evaluations would try to decipher whether cash transfers lead to individual well-being 5, 10, 15 years after the intervention. No one does that. Attrition and noise obstruct all scientific (econometric) efforts.

    Posted April 26, 2011 at 10:15 am | Permalink
  2. geckonomist wrote:

    I’d like to hear Prof. Easterly explain, in his function as a professor in economics, whether conditional cash transfers should be considered a zero-sum game, or better, or worse than that.

    My assumption that he prefers Hayek to Keynes, would make the discussion even more interesting.

    Given a free choice, I’d opt any time for foreign direct investment, infrastructure & power generation investments, investments in the productivity of the workforce (education) and levelling the playing field among investors.

    However, realpolitik tells me that any of those are impossible to expect from wildly incompetent poor country’s governments, and in the knowledge that their other government programs typically amount to little else than pure waste and/or market distortions, conditional cash transfers are by far the lesser evil.

    In the absence of transfering her cash, I do hope the poor get their free superbowl T-shirt from Laura.

    Posted April 26, 2011 at 12:27 pm | Permalink
  3. A meeting report on evaluating the use of CCT in Africa might be of interest to those who have been following the cash transfer conversation: http://childresearchpolicy.org/images/The_evaluation_of_cash_transfer_schemes_in_Africa_March_2010.pdf

    Posted April 26, 2011 at 2:38 pm | Permalink
  4. aytal wrote:

    The WEST loves “friendly tyrants” like MUBAREK and MELES who loot their country and transfer their hard currency to western banks and capitals. Saudi Arabia is obliged to deposit a portion of her petro Dollar in American Bank is New York. Is Saudi Arabia really a free country? When will you tell us how many millions of dollars is snatched from Hungry Ethiopians and deposited in western banks by “friendly tyrant” Meles Zenawi.

    Posted April 26, 2011 at 2:51 pm | Permalink
  5. Kristie wrote:

    I like what Alexander said: Alleviating poverty is alleviating poverty. Cash transfers obviously have some good effects. I may be wrong, but couldn’t they help the supply side too in the long run? As a college student, I’m often “poor”. I get “cash transfers” from my parents, and buy clothes, move into nicer apartments, eat at restaurants more often. Along with all the other students, my using cash to buy these things results in more shopping, more apartment complexes, and more restaurants being opened in our college town. If we didn’t have our “cash transfers” we wouldn’t have demand for these things, so no one would be motivated to supply them. I realize service delivery improvement is pretty different from new restaurants being built, but as people consume more (education and healthcare) because they can afford it, wouldn’t there be incentive for more suppliers to come in, resulting in more competition, with would, in the long run, result in people being able to choose better quality?
    All this being said, I don’t believe cash transfers to incompetent governments can make a huge difference. It’s important that those it is being given to have the capability, resources, and resolution to use it in ways that result in economic growth.

    Posted April 26, 2011 at 10:00 pm | Permalink
  6. Manuel wrote:

    Just a note for fellow commenters: what Laura is talking about here is about cash transfers directly delivered to people, not to governments (incompetent or otherwise)

    Posted April 28, 2011 at 6:19 am | Permalink
  7. I noticed by the mid-2000s how remittances (the migration studies term for cash transfers) had begun to be accepted as potentially positive by development commentators. And I wrote about how even money from selling sex could be useful as remittances, and the fact that migrants who sell sex send back much greater amounts of money than loads of other workers. the article, which has been translated to several other languages, can be read here: http://www.lauraagustin.com/contributing-to-development-money-made-selling-sex

    Laura Agustín

    Posted May 1, 2011 at 8:50 am | Permalink
  8. Brandon J wrote:

    Cash transfers straight to the people is a great idea, because the people at the bottom now have the cash to get what they most need not what somebody a couple thousand miles away thinks that they need. As far as to the comment in the paper about cash transfers not affecting the supply side of the problem over time and as those citizens gain more power (money) they can demand better of the government to supply and train better teachers, because just like in any goverment, money talks.

    Posted May 2, 2011 at 6:10 pm | Permalink
  9. l wrote:

    The differing results from cash transfers largely comes from the differing ways countries’ governments handle the money. Many poor countries are (and remain) poor because of the failures of their governments. It is not surprising that these governments have misused this aid money. Over the past several decades the failures of aid have become almost universally accepted. It is comforting that a “new and innovative” method of aid is gaining support and momentum.

    Posted May 2, 2011 at 9:05 pm | Permalink
  10. Melissa wrote:

    I think cash transfers are a really good idea. Nothing about aid is every going to be completely inclusive and cover all the problems of poverty. Putting money directly into the hands of the people who need it and letting them decide what they most need it for is extremely productive. By allowing the recipients of these cash transfers to control their own finances and make their own decisions it is in a way directly creating a market and consumers. Of course, as in any financial assistance there is the possibility of cheaters and people who will make bad choices, but consumer choices are to some degree innate and by giving them the means to be consumers they may exercise this ability.

    Posted May 4, 2011 at 4:58 pm | Permalink
  11. Jack Rady wrote:

    I would have to agree that cash transfers are typically good for the inhabitants receiving the money. Who better to determine what is best for their society then the people who live there. Is it foolproof? No not by any means, however, until we can find a better solution than cash transfers serves its purpose.

    Posted May 8, 2011 at 8:02 pm | Permalink

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  2. […] sceptical of their potential as panaceas. Which is another way of saying I completely agree with Laura Freschi’s measured scepticism at […]

  3. […] The whole notion of a silver bullet is a non-starter for me.  There is no such thing as a silver bullet, and no one actually thinks that they really exist.  People talked about microfinance as a silver bullet, and now conditional cash transfers.  But in world of complex, deep, systemic problems and inequalities, the perfect cannot be the enemy of the good.  And when something works, that is a good thing. […]

  4. […] Link to the original site Filed in Aid by Mark Oppenneer SHARE THIS Twitter Facebook Delicious StumbleUpon E-mail « Seeds and synergies : innovating rural development in China » Aid Effectiveness for Health: Making Health Aid work better No Comments Yet […]

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    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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