Helping reduce poverty in the short- and long-term: The experience of Conditional Cash Transfers Ariel Fiszbein The World Bank Delhi, October 24-26, 2007

Motivation Trend toward integrated social programs in response to multi- dimensional nature of poverty Improving educational outcomes of poor children requires actions both on the supply and demand side Conditional cash transfer (CCT) programs: 1. Reduce current consumption poverty 2. Promote accumulation of human capital, helping break a vicious cycle whereby poverty is transmitted across generations The success of the initial programs (documented through rigorous impact evaluations) created strong demand.

Conceptual basis for CCTs 1.Why transfers? Redistribution justified for equity reasons, although generally some efficiency costs – Distortions from reduced labor supply, and from taxes needed to finance the program If there are market failures, redistribution can lead to improvements in efficiency, including in terms of investment in education – For example, credit market failures. 2.Why cash? Unless markets are missing, cash transfers are more efficient than in-kind transfers or subsidies for consumption of a particular good

Conceptual basis for CCTs 3.Why conditions? In general, if markets are perfect, conditional transfers will be less efficient than unconditional transfers. However: – Imperfect private information or misguided beliefs (e.g. lack of understanding about returns to education) – Intra-household power relations (e.g. child labor, gender biases) – Externalities across households (e.g. skills/productivity, crime/violence, citizenship) – Political economy considerations ( e.g. education as merit good)

Targeting and consumption poverty CCTs have generally been well targeted (Graph)Graph Disincentive effects have been small 1. Minimal reductions in adult labor supply in Mexico and Nicaragua 2. Remittances: No crowding out of remittances in Nicaragua, Honduras, and Mexico CCTs have had reduced consumption poverty, especially when transfers are large (Graph)(Graph) The medium-term benefits of CCTs may exceed those suggested by short-term, static comparisons (e.g. investment in productive assets, credit)

CCTs have had significant effects on school enrollment and attendance Examples from Latin America : – Nicaragua—RPS: 17.7% points – Honduras—PRAF: 3.3% points – Mexico—Oportunidades (urban areas): 3% points Examples from “stipends” for girls in secondary school in Asia: – Cambodia: 22-33% points – Bangladesh: 12% points – Pakistan: 9% points

… especially among children with low propensities to enroll in school 1. Larger program effects in countries with lower baseline enrollmentbaseline enrollment Impact of CCT on enrollment in primary school is ~ 6 times as large in Nicaragua as in Brazil or Mexico Impact of CCT on transition from primary to secondary is 2-3 times larger in Cambodia than in Mexico 2. Larger program effects in transition grades with high dropout rates Impact of PROGRESA-Oportunidades in Mexico is ~ 4 times as large for children in 6 th grade at baseline as children in other grades in primary school 3. Larger program effects among poorer householdspoorer households In Nicaragua, program effect on enrollment is 26 % points among extremely poor households, 12 % points among poor, and 5 % points among non-poor In Cambodia, the effect of CCT on enrollment for children in the first (poorest) quintile is ~4 times that in the fifth (richest) quintile

CCTs increase school attainment among adults, and result in increases in wages… In Mexico, Children who were randomly assigned to receive two more years of CCT have approximately 0.2 more years of schooling If rate of return to schooling is ~ 10 percent, this means that, on average, these children will earn approximately 2 percent higher wages as adults Results hold for children who were at baseline, and who are therefore likely to have completed their schooling

Questions of program design: Who is the ideal target for a CCT? – Poor households with human capital shortfalls and large returns to human capital investments Poorhuman capital shortfalls How important are the conditions? – Apparently very important as they increase enrollment above/beyond income effect (more)(more) How important is the transfer size? – Positive but diminishing marginal returns to transfer size (more...)(more...)

CCTs and the supply side: The quality of schools matters for program effects: – Mexico: larger effects on enrollment when class-sizes are smaller, and in regular schools rather than the distance learning schools – Nicaragua: larger effects when schools were autonomous and had more flexibility to respond to changing demand conditions. CCT programs by themselves do not lead to improved learning outcomes – Mexico, Cambodia: no evidence of improved test scores – Ecuador: evidence of improved cognitive development among younger children

CCTs and the supply side: Complementary action Poor human capital outcomes are not exclusively a result of low incomes and low utilization of education or health services At the household level, other factors related to information or parenting practices may be important. Proactive strategies may be necessary: – Follow-up with families (e.g. Chile, Panama) – Rewarding achievement (e.g. Colombia) – Rewarding learning? At the provider level, insufficient incentives to focus on quality, particularly for under-privileged students. Conditional grants can also be used to change provider behaviors: – Teacher and school incentives (Nicaragua, Mexico, Bangladesh) – School-based management (El Salvador, Nicaragua) – Contracting out (mostly in health)

Key messages: CCT programs should be directed to correct a market distortion that results in sub-optimal investment in education (both quantity and quality). In most cases, they complement actions on the supply side. Need to think in systemic terms. CCT programs have positive externalities on the quality of public policies (including cross-sector coordination).

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The impact of CCT on enrollment is largest in countries which had low baseline enrollment rates… Return

The impact of CCT on enrollment is largest among poorest households in Cambodia… Return

CCT benefits are decidedly progressive… Return

Programs that make larger transfers have bigger effects on consumption and poverty… Nicaragua (RPS)Honduras (PRAF) (transfer: 17%)(transfer: 4%) Return

Bangladesh: Retargeting to the poor good for equity and efficiency Grade Grade Survival Rate poorest quintilequintile 2quintile 3quintile 4richest quintile Return

Targets in Mexico and Cambodia: Implications for Efficiency and Equity Return

Conditioning the transfer is important for enrollment/attendance: Mexico: Some households did not receive forms necessary to monitor conditions during PROGRESA roll-out. Enrollment higher among those who received forms. Ecuador: BDH unconditional, but advertising campaign stressed otherwise. Effects much larger among households that believed the program is conditional. Brazil: Impact of Bolsa Escola on enrollment 4-5 times as large as the impact of the rural pension (UCT for children co-residing with the elderly) Return

How much does the size of the transfer matter? A story of diminishing marginal returns to transfer size? (a)Ex-post evaluations: In Cambodia, some households received a transfer of $45, others a transfer of $60 if they enrolled their children in school – Each dollar of the initial $45 “purchased” ~0.38% points of increased attendance – Each dollar of the additional $15 “purchased” only ~0.12% points more attendance (b)Structural modeling: In Brazil, Ecuador, Panama, and Nicaragua, a transfer of (say) $100 to poor households “buys” significantly less than twice as much as a transfer of $50 Return