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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)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 4 (2012)
Issue (Month): 1 (January)
Pages: 164-92

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Handle: RePEc:aea:aejapp:v:4:y:2012:i:1:p:164-92

Note: DOI: 10.1257/app.4.1.164
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Find related papers by JEL classification:

• D14 - Microeconomics - - Household Behavior - - - Personal Finance
• H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
• I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
• O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

References

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1. T. Paul Schultz, 2001. "School Subsidies for the Poor: Evaluating the Mexican Progresa Poverty Program," Working Papers 834, Economic Growth Center, Yale University.
   
   • Paul Schultz, T., 2004. "School subsidies for the poor: evaluating the Mexican Progresa poverty program," Journal of Development Economics, Elsevier, vol. 74(1), pages 199-250, June.
2. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-92, July.
   
   • Christopher D. Carroll & Miles S. Kimball, 1995. "On the Concavity of the Consumption Function," Macroeconomics 9503003, EconWPA.
   • Christopher D. Carroll & Miles S. Kimball, 1995. "On the concavity of the consumption function," Finance and Economics Discussion Series 95-10, Board of Governors of the Federal Reserve System (U.S.).
3. Albarran, Pedro & Attanasio, Orazio P., 2002. "Do Public Transfers Crowd Out Private Transfers? Evidence from a Randomized Experiment in Mexico," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
4. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
5. David J. McKenzie & Christopher Woodruff, 2006. "Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 3-42.
   
   • McKenzie, David J & Woodruff, Christopher, 2006. "Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 3-42, October.
6. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
7. Wolpin, Kenneth I, 1982. "A New Test of the Permanent Income Hypothesis: The Impact of Weather on the Income and Consumption of Farm Households in India," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 583-94, October.
8. Hoddinott, John & Skoufias, Emmanual, 2003. "The impact of Progresa on food consumption," FCND discussion papers 150, International Food Policy Research Institute (IFPRI).
   
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   • Hoddinott, John & Skoufias, Emmanual, 2003. "The impact of Progresa on food consumption," FCND briefs 150, International Food Policy Research Institute (IFPRI).
9. Sadoulet, Elisabeth & Janvry, Alain de & Davis, Benjamin, 2001. "Cash Transfer Programs with Income Multipliers: PROCAMPO in Mexico," World Development, Elsevier, vol. 29(6), pages 1043-1056, June.
10. Skoufias, Emmanuel & Parker, Susan W., 2001. "Conditional cash transfers and their impact on child work and schooling," FCND briefs 123, International Food Policy Research Institute (IFPRI).
    
    • Skoufias, Emmanuel & Parker, Susan W., 2001. "Conditional cash transfers and their impact on child work and schooling," FCND discussion papers 123, International Food Policy Research Institute (IFPRI).
11. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
12. Skoufias, Emmanuel & Davis, Benjamin & de la Vega, Sergio, 2001. "Targeting the Poor in Mexico: An Evaluation of the Selection of Households into PROGRESA," World Development, Elsevier, vol. 29(10), pages 1769-1784, October.
13. Skoufias, Emmanuel, 2005. "PROGRESA and its impacts on the welfare of rural households in Mexico:," Research reports 139, International Food Policy Research Institute (IFPRI).
14. Lloyd-Ellis, Huw & Bernhardt, Dan, 2000. "Enterprise, Inequality and Economic Development," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 147-68, January.
    
    • Dan Bernhardt & Huw Lloyd-Ellis, 1993. "Enterprise, Inequality and Economic Development," Working Papers 893, Queen's University, Department of Economics.
15. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
    
    • Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
16. Musgrove, Philip, 1979. "Permanent Household Income and Consumption in Urban South America," American Economic Review, American Economic Association, vol. 69(3), pages 355-68, June.
17. Ravallion, Martin & Chen, Shaohua, 2005. "Hidden impact? Household saving in response to a poor-area development project," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2183-2204, December.

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:

1. Development that Works: CCTs: not the silver bullet, but with long lasting positive effects
   by Pablo Ibarrarán in Eval Central on 2013-04-24 10:55:46
2. Transferencias condicionadas: no son varita mágica, pero hay efectos positivos de largo plazo
   by Pablo Ibarrarán in Hacia el desarrollo efectivo on 2013-04-24 10:53:51
3. Identifying the dynamic protective effects of social programs
   by Jed Friedman in Development Impact on 2012-07-11 13:15:25

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

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Cited by:

1. Macours, Karen & Premand, Patrick & Vakis, Renos, 2012. "Transfers, diversification and household risk strategies : experimental evidence with lessons for climate change adaptation," Policy Research Working Paper Series 6053, The World Bank.
   
   • Macours, Karen & Premand, Patrick & Vakis, Renos, 2012. "Transfers, Diversification and Household Risk Strategies: Experimental evidence with lessons for climate change adaptation," CEPR Discussion Papers 8940, C.E.P.R. Discussion Papers.
2. Patrick Carter, 2012. "Aid Allocation Rules," Bristol Economics Discussion Papers 12/630, Department of Economics, University of Bristol, UK.
3. Haagh, Louise, 2011. "Working Life, Well-Being and Welfare Reform: Motivation and Institutions Revisited," World Development, Elsevier, vol. 39(3), pages 450-473, March.
4. Solomon Asfaw & Silvio Daidone & Benjamin Davis & Josh Dewbre & Alessandro Romeo & Paul Winters & Katia Covarrubias & Habiba Djebbari, 2012. "Analytical Framework for Evaluating the Productive Impact of Cash Transfer Programmes on Household Behaviour ? Methodological Guidelines for the From Protection to Production Project," Working Papers 101, International Policy Centre for Inclusive Growth.
5. John A. Maluccio, 2007. "The Impact of Conditional Cash Transfers on Consumption and Investment in Nicaragua," Middlebury College Working Paper Series 0722, Middlebury College, Department of Economics.
   
   • John Maluccio, 2010. "The Impact of Conditional Cash Transfers on Consumption and Investment in Nicaragua," The Journal of Development Studies, Taylor and Francis Journals, vol. 46(1), pages 14-38.
6. Almeida, Rita & Galasso, Emanuela, 2007. "Jump-starting self-employment ? Evidence among welfare participants in Argentina," Policy Research Working Paper Series 4270, The World Bank.
   
   • Almeida, Rita K. & Galasso, Emanuela, 2007. "Jump-Starting Self-Employment? Evidence among Welfare Participants in Argentina," IZA Discussion Papers 2902, Institute for the Study of Labor (IZA).
7. Coady, David & Martinelli, Cesar & Parker, Susan W., 2013. "Information and participation in social programs," Policy Research Working Paper Series 6319, The World Bank.
8. Ariel Fiszbein & Norbert Schady & Francisco H. G. Ferreira & Margaret Grosh & Niall Keleher & Pedro Olinto & Emmanuel Skoufias, 2009. "Conditional Cash Transfers : Reducing Present and Future Poverty," World Bank Publications, The World Bank, number 2597.
9. Patrinos, Harry Anthony & Skoufias, Emmanuel & Lunde, Trine, 2007. "Indigenous peoples in Latin America : economic opportunities and social networks," Policy Research Working Paper Series 4227, The World Bank.

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