Cash, Development and Dependence

The results are impressive (Berkeley) and as interpreted by Matthew Yglesias (Slate via Chris Blattman):

The research comes from a 2008 initiative in Uganda’s very poor northern sections. The government announced plans to give roughly a year’s worth of average income (about $382) to young people aged 18-34. Youths applied for the grants in small groups (to simplify administration) and were asked to provide a statement about how they would invest the money in a trade. But the money was explicitly unconditional—parceled out as lump sums with no compliance monitoring. [...]

The government selected 535 groups—a total of about 12,000 people—for the experiment. Of the 535 groups, about one-half were randomly selected to actually get the money, and the rest were denied. Blattman, Fiala, and Martinez then surveyed 2,675 youths from both the treatment and the control group before dispersal of money, two years after dispersal of money, and four years after dispersal of money. The results show that the one-off lump-sum transfer had substantial long-term benefits for those who got the cash. As promised, the people who received the cash “invest[ed] most of the grant in skills and business assets,” ending up “65 percent more likely to practice a skilled trade, mainly small-scale industry and services such as carpentry, metalworking, tailoring, or hairstyling.” Consequently, recipients of cash grants acquired much larger stocks of business capital and thus earn more money—a lot more money. Compared to the control group, the treatment group saw a 49 percent earnings boost after two years and a 41 percent boost after four.

Yglesias may be a bit overenthusiastic to conclude that "the message is that taking a huge bite out of global poverty may be easier than most people realize. Poor people just need more money." He/Blattman hypothesize that at least some of the poverty is as a result of the lack of access to "affordable" capital. There is however research that suggests that even "unaffordable" capital has significant long term benefits (WSJ).

This being said, there's a large body of evidence that microfinance doesn't/can't help the poorest of the poor (Google). That borrowers of microfinance are one step up the very large and deep "bottom" in the scale of poverty. So this may help to answer the question of what interventions may work in helping the poorest (though the research Yglesias cites doesn't specifically address this point). Further, I think it's important to note that these were one time payments versus ongoing pay outs which I think is an important distinction (as there's also evidence that entitlement programs are detrimental to poverty reduction in the developed world (Heritage)).

On the other hand, I think the research on minimum income, like the study in India, deserves a closer look. Even so, it's exciting to see the idea of cash giving gaining traction (Forbes via Chris Blattman).

Update: Blattman qualifies some of the new optimism and expands on his views on cash transfer programs (ChrisBlattman)

Update #2: Blattman rounds up some of the new research on education, cash grants and entrepreneurship in development (ChrisBlattman)

Update #3: When every argument begins with “is it better than cash?” (AidThoughts via Chris Blattman)

Update #4: (Oct. 25) from Chris Blattman - "What happens when $1000 of manna falls onto your mobile phone? The GiveDirectly study of unconditional cash to poor farmers in Kenya is out."