Social cash transfers and their impact on households' investment decisions

Social cash transfers are a popular tool of social protection that is by now being applied by many developing countries. This research project assesses the effects of social cash transfers on households’ investment decision in rural areas. It specifically addresses the question if cash transfers encourage profitable but potentially risky investment decisions in agricultural production and which effect they have on human capital investment.

Project Lead:
Markus Loewe

Project Team:
Christoph Antons
Christoph Strupat

Michael Grimm, University of Passau

Bundesministerium für Wirtschaftliche Entwicklung und Zusammenarbeit (BMZ)

Time frame:
2012 - 2018 / completed

Project description

By now, the short-term effects of social cash transfers are well established. They show that cash transfers reduce income poverty in the short- and medium-term and that they improve access to health service as well as enrollment rates in poor households. However, the longer term effects of social cash transfers are not well established. This is particularly important, because it is not yet clear, if cash transfers have the potential to interrupt the intergenerational transmission of poverty.

Poor households in developing countries are often trapped in poverty because they cannot optimally invest. The lack in access to credit and the expectation of additional income risk constrain households in their investment decisions and prevent them from adopting new technologies or from accumulating human as well as productive capital. Poor households are thus often stuck in low risk-low productivity sectors.

A reliable and publicly guaranteed access to cash transfers could give households the necessary security to reduce precautionary savings, to engage in more risky activities ant to invest in capital even if they are not currently receiving transfers. This research project addresses these questions. More specifically, it analyses if the access to cash transfers influences technology adoption and productive investments in agricultural production as well as investments in human capital.