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Social Transfers and Growth: A Review

Author: Armando Barrientos and James Scott
Date: 2008
Size: 42 pages (173 KB )

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Summary

What effects may social transfers be expected to have on household-level growth in developing countries? This analysis of the available evidence finds very little to support concerns that social transfers have a negative impact on growth. Instead, there is some evidence to indicate that well-designed and well-implemented social transfers can facilitate micro-level growth by increasing the ability of poor households to invest in their productive capacity. Policymakers need to incorporate growth objectives into social transfer programmes to help build packages of interventions that promote sustainable, long-term improvements in well-being.

Social transfers are direct transfers in cash or in kind to poor individuals and households. Most of the existing scholarly work on social transfers in developing countries has focused on their role in reducing poverty and vulnerability, with less attention paid to potential effects on growth. Analysis of the growth effects of social transfers in the global South requires an explicit focus on the poor and their circumstances; the poor face qualitatively different challenges from those who are better off.

The review identifies three processes through which social transfers can lead to investment and growth at the household level. These are the extent to which they can: (i) lift credit constraints; (ii) provide greater certainty and security; and (iii) facilitate improved household resource allocation and dynamics.

The literature on developed countries has pointed to the potentially negative effects of social transfers, especially on incentives to work and save among beneficiaries. However, empirical evidence on the growth outcomes of social transfers in developing countries reveals a more positive picture. Key findings include:

• The most commonly-cited negative effects of social transfers are either not evident in practice or are outweighed by positive effects.
• Social transfers lead to increased investment in human development, especially health and education.
• Social transfers do not have net adverse labour supply effects on beneficiary households.
• Social transfer beneficiaries tend to increase rather than reduce their savings.

While social transfers cannot solve all poverty-related problems, they are an important policy tool for poverty alleviation. Social transfers must be regular and reliable, and continue for an appropriate duration to facilitate and protect investment. The level of social transfers is also important. Low levels of transfers relative to household consumption have smaller effects on households' ability to break free from poverty traps. Further:

• Eligibility conditions should not incentivise asset depletion. Beneficiaries should be able to continue paid work without losing transfers, so as to avoid negative effects on labour supply.
• Programmes should be designed in ways that facilitate household re-allocation of productive resources. Channelling transfers through specific household members - especially women - may have positive effects on household investment.
• Social transfers should be combined with complementary asset accumulation interventions (including both human capital and productive assets).
• At the micro-level, large-scale interventions should be adequately monitored and evaluated. More analytical work is also needed to determine the macro-economic effects of social transfers.
• Social transfers that currently reduce poverty and are consistent with growth objectives may not do so in the future, or in different environments: they need to be monitored.

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Source: Barrientos, A. and Scott, J., 2008, 'Social Transfers and Growth: A Review', Working Paper 51, Brooks World Poverty Institute, Manchester
Organisation: Brooks World Poverty Institute, http://www.bwpi.manchester.ac.uk/