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Key Text Local Economy Effects of Social Transfers

Author: Armando Barrientos and Rachel Sabates-Wheeler
Date: 2006
Size: 24 pages (229 kB)

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Summary

How and to what extent have social cash transfer programmes affected the local economy? This paper reports on a study examining the incidence and significance of local economy effects of social transfers in rural Mexico. The study focused on changes in household consumption and asset holdings among households ineligible to participate in the PROGRESA targeted cash transfer programme. Evidence supports the presence of local economy effects.

PROGRESA is a large-scale cash transfer programme targeted on poor households. PROGRESA transfers amount, on average, to around 20 per cent of the consumption of around 4 million beneficiary households in rural Mexico. This represents a large injection of liquidity into poor communities and suggests the likelihood of local economy effects. Such effects are also suggested by evidence from previous research:

Early studies of the social pension in South Africa, for example, found that transfers stimulated local production and trade.
Research in Brazil noted that entitlement to regular and reliable transfers makes beneficiaries credit-worthy.
Cash transfers may also have effects upon the demand and composition of employment. For example, beneficiaries with access to land but unable to farm themselves can use the cash transfer to employ another villager to tend the fields.

The PROGRESA study compares household consumption and asset holdings among non-eligible households in treatment areas and similar households in control areas. Findings include the following:

Non-eligible households in treatment areas have significantly higher household consumption than similar households in control areas in the two years after the introduction of PROGRESA.
There is also evidence that asset holdings among non-eligible households in treatment areas are significantly higher than non-eligible households in control areas.
This effect seems to be stronger for land and livestock ownership.

It seems then that transfer programmes are able to achieve much more than increasing the welfare of direct beneficiaries. They are also capable of promoting and encouraging economic activity among non-eligible groups. Further research should focus on measuring the size of these broader effects in communities and identifying the possible channels and timing of diffusion processes.

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Source: Barrientos, A. and Sabates-Wheeler, R., 2006, 'Local Economy Effects of Social Transfers', Institute of Development Studies, Brighton, UK
Organisation: Institute of Development Studies , http://www.ids.ac.uk