The local economy impacts of social cash transfers: a comparative analysis of seven sub-Saharan countries

Organization(s): FAO
Author: Benjamin Davis, J. Edward Taylor, Karen Thome, Mateusz Filipski, Sudhanshu Handa
Regions: Sub-Saharan Africa
Year: 2016
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Africa has taken centre stage in the use of social cash transfer (SCT) programmes to combat extreme poverty and vulnerability. Between 2000 and 2009, over 120 cash transfer programmes were implemented in sub-Saharan Africa, by both governmental and non-governmental institutions (Garcia and Moore, 2012). These programmes increasingly form part of formal government social protection systems and range from small pilots to national, domestically financed large-scale initiatives. These programmes vary in detail but share the same basic approach: distributing cash transfers – usually unconditional – to individuals in ultra-poor households and, most often, to women. Income eligibility for SCTs is typically determined through proxy means testing and/or community-based wealth rankings. Some programmes have additional eligibility criteria, such as the presence of orphans and vulnerable children (OVC) and disabled adults in the household. Thus, beneficiary households are often both asset and labour poor.

The main goal of SCT programmes is usually to improve human health and welfare outcomes in poor and vulnerable households. However, SCTs may have productive as well as social impacts in beneficiary households. SCTs have the immediate impact of raising purchasing power in beneficiary households, and possibly loosening cash constraints on input purchases, financing productive investments in credit-constrained environments and reducing income risk. They may also affect production in non-beneficiary households through market spillovers. These spillovers are difficult to identify experimentally because they are second-order impacts diffused over a population that is large relative to the beneficiary population. Nevertheless the sum of these impacts may be large, resulting in significant SCT income multipliers. That is, a dollar transferred to a poor household may increase total income in the local economy by more than a dollar.

By treating beneficiaries, however, SCTs also treat the local economies of which they form a part. Beneficiaries’ spending transmits the impacts of SCT programmes to non-beneficiaries, potentially creating production and income spillovers.

This article presents findings on the local economy impacts of seven African country SCT programmes evaluated as part of the UN Food and Agriculture Organization’s (FAO) “From Protection to Production” (PtoP) project. The countries are Ethiopia, Ghana, Kenya, Lesotho, Malawi, Zambia and Zimbabwe. The PtoP project has facilitated expansion of the evaluations of SCT programmes to include productive and local-economy impacts. Local economy-wide impact evaluation employs simulation methods to reveal the full impact of cash transfers on local economies, including spillovers they create to non-beneficiaries. It does this by linking agricultural household models together into a general-equilibrium model of the local economy, in most cases a treated village or village cluster.