Cash Transfers, Risk Management, and Cognitive Development in Early Childhood

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Cash Transfers, Risk Management, and
CognitiveDevelopment in Early Childhood

• Karen Macours
• Paris School of Economics

• Based on joint work with collaborators from the
  World Bank (Patrick Premand and Renos Vakis), the
  Inter American Development Bank (Norbert Schady)
  and partners in Nicaragua (CIERUNIC and CIASES)

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Motivation (1)

• Households in developing countries are often
  highly exposed to risk
• Growing sense that exposure to risk of
  agricultural households might become even more
  pressing
• Climate change leading to higher weather
  variability
• Climate change leading to changes in weather
  patterns
• Globalization and market integration leading to
  more fluctuations in food prices
• Adaption, coping and risk management abilities
  are often limited for poor agricultural
  households
• Lack of formal insurance, in combination with
  many other market imperfections
• But also possibly low aspirations, lack of
  information, status quo bias,

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Motivation (2)

• Households use a variety of strategies to deal
  with risk
• Income diversification
• Asset accumulation
• Formal and informal insurance
• But large welfare cost of risk and shocks remain
• Policy ?
• Social safety nets
• Insurance schemes
• Interventions that enhance household
  risk-management (other than insurance)?

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Atención a Crisis

• Innovative pilot in Nicaragua specifically
  designed to explore the complementarities between
  a safety net and productive interventions to
  improve risk management in the medium-term
• Implemented after major drought, and in
  environment with overall high exposure to drought
  shocks
• Program objectives
• Safety Net in the short term Reduce the negative
  impact of aggregate shocks that deplete the
  accumulation of human and physical capital
  investments, and reduce the need to use adverse
  ex-post mechanisms for coping with shocks
• Foment upward mobility and poverty reduction
  through the accumulation of productive assets in
  the long term Improve the asset base of
  beneficiary households and the capacity to
  diversify income and reduce poverty through
  strengthening risk management strategies ex-ante
  in a manner that is sustainable over time

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This presentation

• Findings of a randomized impact evaluation
• Asset creation protect households against
  negative impact of shocks through better risk
  management and income diversification
• Social safety net helps protect cognitive and
  socio-emotional development in early childhood
• Sustainability of impacts after the end of the
  program
• gtRole of behavioral changes and aspirations

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Outline

• Setting
• Pilot program
• Are households better protected against shocks
  two years after program ended?
• Role of aspirations
• Are there sustainable improvements in early
  childhood development?
• Role of behavioral changes
• Conclusions

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Risky Setting

• Nicaragua one of the poorest countries in Latin
  America
• Many risks natural disasters, weather,
  economic,
• Despite frequency of droughts, strong dependence
  on self-employment agriculture (beans and corn),
  and very little diversification into
  non-agricultural activities
• Drought shocks have a negative impact
• Total consumption decreases upto 50, food
  consumption upto 27
• 60 of households report a drought shock in last
  year
• Households perceptions of increased weather risk
  (rainfall data confirm significant changes in
  rainfall patterns)
• Households consider agricultural activities
  riskier than other type of economic activities

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Some details on the Atención a Crisis pilot
program

• Program of the ministry of the family (MIFAMILIA)
• 6 municipalities in rural Nicaragua with high
  levels of extreme poverty and frequent droughts
• 3000 poor and vulnerable households
• Combine conditional cash transfers with
  interventions targeted at increasing the
  productive capacity of poor households
• 1000 hh CCT
• 1000 hh CCT vocational training
• 1000 hh CCT productive investment grant
• November 2005 - December 2006
• Women primary beneficiaries of program
• Heavy social marketing and design facilitated
  group dynamics

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Design/Timing of the Impact Evaluation

• Randomized selection in two steps
• Random Control (50) and Treatment communities
  (56)
• Within treatment communities Lottery to select
  families in each of the 3 packages
• Baseline in 2005
• No baseline differences between treated and
  control households, nor between different
  treatment groups
• Follow up survey July-August 2006
• 9 months after the program began
• Program ends December 2006
• Second follow-up survey in 2008-2009
• 2 years after end program

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Beneficiaries of the training package

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Beneficiaries of the productive investment package

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Questions on productive component

• Are beneficiaries better protected against shocks
  2 years after the end of the program?
• What are the underlying mechanisms?
• Role of asset creation Differences between
  packages
• Information on income diversification
• Attitudes towards risk and risk-management
• Role of social interactions in changing
  aspirations?

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Relationship between shock intensity and key
outcomes in T and C
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Relationship between shock intensity and key
outcomes in T and C
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(No Transcript)
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Main findings on risk management

• Beneficiaries are better protected against
  negative impact of agricultural shock
• On total consumption and food consumption
• Protection highest for productive transfers (T3)
• 2 years after the end of the intervention, the
  impact of productive transfers significantly
  positive, and significantly larger than other
  interventions in presence of shocks
• Mechanisms?
• Program induced income diversification
• More livestock activities/income
• More nonagricultural activities/income
• Program leads to changes in attitudes towards
  nonagricultural and agricultural activities

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Role of changing aspirations?

• Before the program, I just thought about working
  in order to eat from day to day. Now I think
  about working in order to move forward through my
  business. Through experiences, one learns and
  opens up towards the future. By talking to
  others, one understands and learns.
• Beneficiary of the productive investment
  package

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Change in aspirations through interactions with
leaders

• Program design facilitated multiplier effects by
  building in mechanisms to enhance social
  interactions
• Positive role of leaders
• Positive experiences of, and interactions with,
  nearby leaders can help open peoples aspiration
  window
• Note that this does not imply targeting to
  leaders multiplier effects are the largest when
  both leaders and other beneficiaries received the
  largest package
• Social interactions and changing aspirations
  might be important for sustainability of program
  impacts

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Returning to the social safety net

• Were there sustainable improvements in early
  childhood development?
• Motivation for focus on ECD
• Little evidence on the impact of cash transfers
  on cognitive and emotional development in early
  childhood
• Cognitive development in early childhood is an
  important predictor of success throughout life
• Literature on how nutritional supplements and
  early childhood stimulation programs affect early
  childhood development
• Much less is known about programs that affect
  investments of parents directly
• Children have very large delays in cognitive
  development

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Main results

• Significant program effects on early childhood
  development, and particularly so on cognitive and
  social-emotional skills
• Effects persist 2 years after the program ended
• Households who got the productive investment
  package still have significantly higher
  consumption than households with basic package, 2
  years after the program ended
• Yet, no significant differences in early
  childhood development outcomes between children
  in households who randomly got the larger
  transfers versus basic treatment
• gt Suggest that something other than (or in
  addition to) the cash explains the treatment
  effects on child development

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Changes in household investment patterns
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Behavioral changes contribute to sustainability

• Changes in the importance and composition of food
  expenditures
• Upward shift in the Food Engel curve
• Decrease in food share devoted to staples
• Increases in food share devoted to animal
  proteins, and fruits vegetables
• Increase in stimulation
• Increase in proportion of children at a given
  expenditure level who have access to books, pen
  paper
• Significant increase in number of hours read to
• Improvements in measures of investment in child
  health
• Remarkably these changes are smaller but still
  significant in 2008, even for the basic package
• Behavioral changes At any level of expenditures,
  treated and control communities spend resources
  differently

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Conclusions

• Productive safety nets can help households to
  manage risk while protecting childrens
  development (CCT plus)
• On the short-term through social safety net
• On the longer-term
• Through facilitating income diversification
  through asset creation
• Through changes in aspirations
• Through behavioral changes
• Understanding better which design features
  contribute to such changes is key

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• Thank you!
• karen.macours_at_parisschoolofeconomics.eu