Safety nets and economic growth

Stefan Dercon wrote a paper a couple of years ago about how cash transfers might boost growth - by focusing on investments in ECD, smoothing geographical mobility, or smoothing the school-to-work transition.

To those possible avenues, Harold Alderman and Ruslan Yemtsov (ungated) now add:

• improving financial markets
• improving insurance markets
• improving infrastructure (through public works programmes), and
• relaxing political barriers to policy change

I find the last one particularly interesting. So for example, Ghana recently tried to offset the removal of fuel subsidies with a doubling of the coverage of the still-small national cash transfer programme to 150,000 households - helping to avoid Nigeria-style protests. Alderman and Yemtsov note that Indonesia pulled a similar trick on subsidy reform, and Mexico's safety nets helped usher NAFTA in.

But this political point goes beyond relaxing barriers to policy change, to relaxing barriers to technological change. Otis Reid pointed out to me this paper by economic historians Avner Greif and Murat Iyigun which argues that:

"England’s premodern social institutions-specifically, the Old Poor Law (1601-1834)-contributed to her transition to the modern economy. It reduced violent, innovation-inhibiting reactions from the economic agents threatened by economic change."

To be crude - it's worth paying off the Luddites so they don't get in the way of growth-enhancing technological change.

Economists prove importance of transparency in social protection?

"We find that the mistargeting of a cash transfer program in Indonesia is significantly associated with increases in crime and declines in social capital within communities. Hence poorly administered transfer programs have a potentially large negative downside that extends beyond the pure financial costs that have been the focus of the literature to date."

A new paper by Lisa Cameron and Manisha Shah  (ungated). A similar point made by my colleagues Ian and Nils a few years ago based on some qualitative fieldwork.

Cameron and Shah conclude that:

"This study underscores the importance of targeting programs in a way that is acceptable to the a ffected communities. Program acceptance can be enhanced by improving targeting accuracy and by transparent communication of this mechanism and the program's aims to the general population."

Social Spending and ethnic diversity

The core of a David Goodhart's "left-wing" argument against immigration is that racial diversity makes it harder to sustain high levels of social spending. 

I don't necessarily disagree with the point, but harder does not mean impossible. 

The argument is motivated by work by Alberto Alesina and other economists at Harvard. Alberto Alesina is a smart, original, and prolific thinker who does a lot of interesting work. But this particular paper, was never actually published in a peer-reviewed journal. The chart below is the main empirical result driving their argument (from this paper). 

As David is not an economist, I'll break this down for him slowly. This is called a "scatterplot". Social welfare spending as a percent of GDP is on the vertical axis, and an index of racial fractionalization is on the horizontal axis. You can see that there is a negative relationship between the two, but there is also a lot of variation around the fitted line.

A few observations:

- All of the European countries have relatively low levels of racial fractionalization - below 0.2 - but being European actually tells you very little about levels of social spending, which are spread widely between low spending Iceland and Greece, and high spending Belgium and Luxembourg. 

- Removing the European countries would remove the negative trend. Japan (almost no diversity) has almost exactly the same social spending as high diversity Brazil or US. Low diversity Costa Rica has the same social spending as high diversity Mauritius. 

- Looking at the UK - imagine that the UK began to approach New Zealand or US levels of diversity - does that mean we would have New Zealand levels of social spending (higher) or US levels of social spending (lower).

The key point from just looking at this chart is that even if there is a relationship, which it is not even clear that there really is if you consider Europe separately to the rest of the world, diversity is not destiny. Social spending is a policy choice. Diversity might influence this policy choice, but so do a lot of other things. Even if diversity did make social spending harder, it does not make it impossible. Correlation is not causation. Etc. QED. 

Social protection in Congo (Brazzaville)

Colleagues Anthony Hodges and Clare O’Brien have a new working paper out with Lisile Ganga from UNICEF on possibilities for social protection for the Republic of Congo. The bottom line - universal child allowances are affordable and would have a huge impact on poverty.

The Republic of Congo, also known as Congo-Brazzaville, is a country with striking contrasts between its status as an oil-rich, low middle-income country and its high levels of poverty and child deprivations. Social protection provision is largely limited to a small minority in the formal sector of the economy. 

This paper presents the results of quantitative micro-simulations on the cost, impact and cost-effectiveness of different policy options for cash transfers in Congo, including universal and targeted child allowances, old-age pensions and disability benefits, along with an analysis of the existing social protection system, the policy framework and institutional capacity. 

While a poverty-targeted child allowance would be the most cost-effective option, in terms of cost per unit of reduction in the poverty gap, institutional and technical constraints make large-scale poverty targeting unviable in a country with very weak governance. Universal categorical approaches would be much simpler to implement, while still being financially feasible given Congo's substantial fiscal surplus (14% on average in 2006-10). Under the assumptions employed for the simulation, a universal allowance for children under 5 would reduce the national poverty headcount by 9% while costing only 0.7% of GDP.

Social safety net bleg

A friend writes;

Do you know any good, short reads on “social safety nets”?

The context for this is that the South Sudan oil shut-down made all the donors panic and want to divert lots of development programming back to humanitarian programming. All of the advice to the government in response has been to continue to focus on building government systems so that they are stronger and more funds can flow through them when the oil is turned back on.

I think there can and should be a stronger response on the humanitarian side as well, that is institutionalised. Every year, there are going to be parts of South Sudan that are food insecure, even if just due to bad rains or floods. So we need a sustainable system that can address these needs, and to ensure households don’t become chronically food insecure, not the current system of panicked international fund-raising and dumping tonnes of food aid on the problem every year.

So do you know a good, short briefing paper that summarises country experiences and evidence on these sorts of programmes?

I second all of that. So - any suggestions?

Targeting the Hard-Core Poor

As briefly flagged in the IPA Annual Report, there are some exciting positive results coming out of the BRAC graduation model. IPA is coordinating evaluations all over the world, and some of the first results are coming out of the Bandhan implementation in India, the evaluation led by Abhijit Banerjee, Esther Duflo, Raghabendra Chattopadhyay, and Jeremy Shapiro (paper here).
As The Economist reports;

Well after the financial help and hand-holding had stopped, the families of those who had been randomly chosen for the Bandhan programme were eating 15% more, earning 20% more each month and skipping fewer meals than people in a comparison group. They were also saving a lot. The effects were so large and persistent that they could not be attributed to the direct effects of the grants.

What worries me is how scalable this programme is. That word "hand-holding" worries me. How many developing country governments have the resources and management capacity to arrange for a detailed skilled-labour-intensive personalised package of intensive support for every poor person? How many developed country governments have the capacity for that?

It worries me especially when there are so many easily scalable cost effective programmes out there that are not being funded. Why not focus first on the simple things that we know to work, like universal child grants or universal school meals, that can easily have a big impact on millions?

DFID Livelihoods Program in South Sudan

DFID is planning to spend up to £100 million on food security and livelihoods in South Sudan over the next 5 years, the largest of all its programs. Is that a lot or a little?

DFID's expected results in this area are to support 1 million people to achieve food security.

Not knowing the details of the program, I am going to imagine for a second that DFID has a zero-overhead cash transfer or food voucher planned. 

£100 million over 5 years, divided between £1 million people, is 5.4 pence a day each. 

"Hello there Mr. Deng, here's 5 pence, buy yourself a sandwich yeah? Go nuts with it, I'll give you another 5p tomorrow! Sorted yeah?"

So - to get to an even slightly more realistic sufficient basic daily income, all we need is for economies of scale, support to production, and that vocational training, to have a 1000% return. Good job that we have all that evidence about the massive massive returns to livelihoods programs. Wait...

Cash Transfers in Africa

The World Bank has a new book out reviewing the state of cash transfer programs in Africa, which gives a nice high-level overview, and lots of juicy detail on targeting, coverage, and transfer mechanisms, 

including a timeline ... 

... the cost of programs (they get easier to fund as countries become wealthier) ...

... admin costs are a relatively fixed cost - they become a shrinking share of the program budget as coverage increases ...

... and as a sensible response to the limited capacity of the poorest countries to fund their own programs, donors play a key role in funding systems in the poorest countries ...



Yes all I did was skim the report for the prettiest charts. What!

How to build resilience to climate change in Kenya

Cash transfers.

A growing body of evidence shows that safety nets are an important complement to efforts to improve the livelihoods of the poor, particularly in areas that remain vulnerable to shocks such as drought. Reliable access to safety net support allows households to take on more investment risk and thus produce higher returns.

 Gabriel Demombynes and Jane Kiringai (World Bank, Kenya)

What can the history of welfare states in the west teach us about social protection in developing countries?

From Peter Lindert, Growing Public: Social Spending and Economic Growth since the Eighteenth Century (HT: MR)

The same forces will continue to drive global trends in social transfers for the next half-century. Countries’ social transfers, like their commitment to public schooling, will depend mainly on their income growth, their population aging, and the fullness of their democracy. The Robin Hood paradox will continue to hold in the year 2050: The countries that still spend less than 10 percent of GDP on transfers, and little on schools, will be the troubled countries where poverty and inequality call most loudly for such social spending.

Yes, social spending has been internally driven for most countries, but the "robin hood paradox" would suggest to me a potential catalytic role for aid.

Social Protection or Political Patronage?

Marco Manacorda, Ed Miguel, and Andrea Vigorito put a working paper out a couple of years ago showing a relationship between receipt of a Uruguayan government cash transfer scheme, and political support for the governing party. Which pretty much makes sense. 

we find that beneficiary households are 21 to 28 percentage points more likely to favor the  current government (relative to the previous government) ... 

Back-of-the envelope calculations suggest that securing  one extra supporter costs the government on the order of US$2,000 per year, or one third of national GDP per capita (though this estimate is an upper bound cost if political impacts persist after the program has ended).

 Which is fine. Government-funded social protection buys political support.

So what does aid-financed social protection buy? Does it depend on who delivers the program? Hopefully GiveDirectly.org can work this into their RCT.

Can Cash Handouts Lead to Economic Growth?

Probably not. And it probably doesn't matter, because the moral case based on evidence of effectiveness in alleviating poverty (and lack of evidence, as far as I am aware, that cash blunts work incentives), should be powerful enough.

But for those who don't dig the whole equity thing, Stefan Dercon has a new paper proposing how social protection could contribute more to overall economic efficiency and growth.

• Social protection focusing on children, especially before the age of five (there are large documented life-time earnings/productivity gains for healthier and better nourished young children)
• Social protection measures to make migration smoother and cities more attractive places to live for low skilled workers, possibly via urban workfare schemes focusing on urban community asset building (cities are engines of growth. A promising similar idea being tested by Mushfiq Mobarak is providing an insurance policy for migrants - a free return bus pass)
• Social protection targeted at adolescents and young adults, including transfers conditional on training focused on urban labour market transitions (something to tackle all that youth unemployment).