December 23, 2020
The promise of conditional cash transfers
Rema Hanna discusses how giving families money affects child development in the long run.
A young boy and his dad smile while eating watermelon in an Indonesian village.
Simply giving cash with a few strings attached could be one of the most promising ways to reduce poverty and insecurity in the developing world. Today, over 63 countries have at least one such program.
And while these policies have been around for a few decades, little is known about how much so-called conditional cash transfers (CCT) improve people's lives over the long term.
A paper in the November issue of the American Economic Journal: Economic Policy fills that gap by studying Indonesia’s conditional cash transfer program over a six year period.
Authors Nur Cahyadi, Rema Hanna, Benjamin Olken, Rizal Adi Prima, Elan Satriawan, Ekki Syamsulhakim found that the Family Hope Program dramatically boosted school enrollment rates and the use of healthcare facilities.
But most importantly, they found signs that families permanently benefited from the extra support. Significantly fewer kids suffered from stunted growth when their parents got cash—an outcome that requires continuous investment throughout childhood.
Hanna recently spoke with the AEA’s Tyler Smith about the effectiveness of conditional cash transfers, the risks of making conditions too strict, and what program designers should keep foremost in mind.
The edited highlights of that conversation are below, and the full interview can be heard using the podcast player below.
Tyler Smith: What are conditional cash transfers?
Rema Hanna: They are cash payments made to targeted households, usually the targeted households are poor households. The difference of conditional cash transfer programs versus other types of transfers is that to receive the full amount of your cash transfer, households are usually asked to show that they've participated in good behavior. So it could be making sure that their children go to school. It could be making sure that their children are vaccinated, or if they have a baby, that they're delivering in an institution.
Smith: Why haven’t economists been able to determine their long-run impacts? What's been the impediment?
Hanna: In many cases, when the conditional cash transfer programs were set up as randomized trials, you would find areas that particularly could benefit from the program.... The treatment group would get the program at the beginning and the control group would not.... Subsequent studies showed very large impacts, and so then it became an issue of wanting to expand the program to the control group as well so that they can get the benefits. But once you expand it to the control group and everybody's receiving the benefits, it becomes very difficult to measure the long-run impacts, because now everybody is being treated by the program.
Smith: What did the Indonesian government ask households to do in order to get the money?
Hanna: There were a number of different conditions. Some of them are related to education—ensuring that your child is enrolled in school and that your child also then attends school, once they're enrolled. Then, there are other conditions relating to health. Those include having your child vaccinated and bringing them in for check ups throughout the year.
Now, Indonesia is a very large and diverse country. In many cases across the country, the conditions were not strongly enforced so that many households nonetheless could receive the funding, even if they weren't able to send their kids to school fully or get their kids fully vaccinated.
Smith: How did the kids from households that got these transfers compare to those that didn’t?
Hanna: We found really positive results. I think the most important result is that we saw an effect on stunting. Stunting remains a large problem in Indonesia. It's been a really intractable problem. And we saw very large effects on stunting—it fell by over 20 percent in the treatment areas.
You can increase weight by providing some food for kids over a couple of months and you'll see their weight improve, but you won't necessarily see large improvements on height. Height is really about a continuous investment in child nutrition from a young age. And so what we're finding is that by providing this cash over many, many years, it gave families the ability to provide more nutrition to their kids in a continual fashion.
These cash transfer programs are really about society helping families. It's about really finding the people who need the help the most and providing them with the funds necessary to have enough food to eat and to be able to invest in their kids.
Smith: Do you think there's a risk that these programs are just addressing the symptoms and maybe not the underlying problems?
Hanna: I think there's a variety of programs you're going to need in order to make societies function.... I'm not saying CCTs are the only programs you need, but rather they are part of a set of policy toolkits that you're going to need to attack different aspects of the problem. And I think if you look at the families who are getting these programs, these are families who are working. Most of these people are employed, but they just don't have enough money to invest in the health and nutrition of their kids. And if small payments along the way provide an ability to do so, I think this is something that is addressing a real problem.
Smith: What do you think designers should keep foremost in mind when implementing a new program?
Hanna: There are two things I would think about. First, I really do think the details of the program design actually matter a lot. And this could be how big of a transfer you give, who you give the transfer to, how you find the people that you want to give the transfer to, or even how stringently you want to enforce the conditions.
I think the second thing to remember is that in the end, these cash transfer programs are really about society helping families. It's about really finding the people who need the help the most and providing them with the funds necessary to have enough food to eat and to be able to invest in their kids.
"Cumulative Impacts of Conditional Cash Transfer Programs: Experimental Evidence from Indonesia" appears in the November issue of the American Economic Journal: Economic Policy. Music in the audio is by Podington Bear. Subscribe to the monthly Research Highlight email digest here.