Investing Cash Transfers to Raise Long Term Living Standards

Sponsors: Thematic Group on Poverty Impact Analysis, Monitoring and Evaluation. 

Tuesday, December 6
12:30 - 2:00 pm
Room MC9-401

Presenters: Sebastian Martinez
 
Cash transfers may enable households to make previously unattainable investments in income generating activities. We find that transfers from the OPORTUNIDADES program in rural Mexico result in increased investments in micro-enterprises and agricultural production, which have a lasting effect on the household’s ability to generate income and thereby increase living standards. For each peso transferred, beneficiary households use 75 cents to purchase consumption goods and services, and invest the rest. The investment yields a 1.2 cent permanent increase in consumption for each peso transferred. Our estimates indicate that, by investing transfers, beneficiary households increased their consumption by 24% after five and a half years on the program. These results suggest that cash transfers to the poor raise long term living standards, which are maintained after program benefits end. Our results also imply an estimated rate of return on investment of between 4.8% and 6.4%, depending on household characteristics, which suggests that some of these households are both liquidity and credit constrained.

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