Conditional cash transfers: Do they work?

Decades of evidence from Mexico and Brazil show that CCTs reduce poverty, improve education and employment, boost local economies, and yet can still be undone when policy ignores research.

For decades, governments around the world have spent billions on conditional cash transfer programmes, giving money directly to poor families on the condition that children attend school and receive regular health check-ups. But do these policies actually work?

In our first episode of Economics Unpacked, we explore the real-world evidence behind conditional cash transfers, drawing on landmark research from Mexico and Brazil. With the help of expert economists, Susan W. Parker and Joana Naritomi, we look at how these programmes affect education, employment, poverty reduction, and even wider local economies.

Economics Unpacked brings cutting-edge economic research to the public, breaking down complex policies with world-leading experts – clearly, critically, and without jargon. If you’re interested in economics, public policy, or international development, this series is for you.

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Transcript

What if fighting poverty was as simple as handing out cash with a few strings attached?

Well, for decades, governments around the world have spent billions doing exactly that – giving cash directly to poor families on the condition that their kids go to school and get health checkups. Economists call these programmes conditional cash transfers.

Across Latin America, the number of people involved is well over 100 million. And worldwide, more than 60 countries give out cash in this way to reduce poverty.

But does it work?

Welcome to Economics Unpacked, where we talk to experts and try to answer the big questions in fighting poverty.

First, let’s rewind a bit to the mid-’90s in Mexico. Here we meet our first expert.

Susan Parker: I’m Susan Parker. It was back in 1997, I was doing a postdoc in Mexico City and I heard about this sort of new pilot programme, so I asked for a job.

The thinking behind conditional cash transfers is simple: reduce poverty today by giving poor families cash, and reduce poverty tomorrow by building up children’s human capital. In other words, making them healthier and better educated.

But how did they test if it worked? Thankfully, the person running the programme had a somewhat unusual background.

Susan Parker: His name was Dr. José Gómez, but everybody called him Pepe.

Drawing on his background in medical trials, he conducted a randomised control trial – but this time, instead of testing a new medicine, he was testing an economic policy.

Because provinces were chosen at random, researchers could isolate the effect of the programme by comparing those who received it initially with those who received it later.

The effects were very positive. Progresa increased outcomes during its initial 18-month randomised rollout.

But did the programme achieve all of its goals? Did it build human capital – making people healthier, better educated, and enabling them to escape poverty?

Susan and her colleagues looked again at the data. This time, the study used census data for the whole country.

Susan Parker: By 2010, the programme was nationwide. There were seven million households receiving the programme. When the children affected were basically in their mid-20s, they had more or less completed schooling and were starting to work, get married, and have kids.

And what did they find?

Susan Parker: Women were much more likely to work outside of the home and have their own income. These effects were really large – like an increase of 30 to 40 percent in labour force participation and income, which is quite significant.

So, conditional cash transfers increase schooling in the short term and improve education and employment in the long run. But what about wider impacts?

Enter our next expert witness.

Joana Naritomi: My name is Joana Naritomi, and I’ve been studying conditional cash transfers for 10 years now.

Now we turn to Brazil, where the first conditional cash transfer programmes were launched in the early 1990s.

Joana Naritomi: Despite all the evidence showing that these programmes have benefits for families, critics often argue that these programmes discourage people from working because basically families would stay poor in order to continue receiving these benefits, and that could affect the overall economy because families are not working as much as they would if this programme was not around. So, what we do is look at an expansion of the Bolsa Família programme that happened in 2009 to see what happens to local economies. And the specific expansion that we look at actually increases the Bolsa Família programme to over four million families. So it’s a very large-scale study, and that allows us to really have a sense of how the policy affected these local economies within the country.

What they find is surprising. The benefits go far beyond the families that received the cash – so-called spillover effects.

Joana Naritomi: What we find is that is a lot of the job creation is really going to workers that had never been part of the programme in the period that we look at. So it really seems like this is a spillover effect from the fact that these families are spending the money that they receive locally, increasing local economic activity.

And what does this mean for the overall costs and benefits of the policy?

Joana Naritomi: Obviously, a full cost-benefit analysis is a bit more complicated, it has many nuances. But a key contribution of our study is that when we transfer money to poor families, we are not hurting the local economy. We are actually potentially increasing local economic activity. So, actually that additional dollar we spend on low-income programme support can actually create local economic activity and be worth more than that one dollar.

So, we have evidence from multiple countries showing the benefits of conditional cash transfers for those directly receiving them, and evidence from the world’s largest CCT programme in Brazil showing positive impacts beyond direct recipients – on local labour markets and the overall economy.

Is that the end of the story? Sadly not.

Let’s return to Susan.

Susan Parker: In spite of all of that evidence and experience, in 2019, López Obrador was elected president of Mexico. He decided to eliminate the Progresa programme and replace it with a new education programme called Becas Benito Juárez. Now I’ve also studied the effects of that enormous policy change and a lot of the progress that had been achieved through conditional cash transfers in Mexico is very unfortunately being reversed.

But what about elsewhere?

Susan Parker: The good news is that this hasn’t had an effect on other countries suddenly abandoning their conditional cash transfer programmes. I’m an academic, but what I care about is not just producing publications or evidence, but having that get out into the world and be used to make effective policies. And think about what are the ways that we can inform the public about these policies, about their effects, about evidence, present them in a way that is understandable to get that evidence out into the public.

And that’s why we started Economics Unpacked: to share the evidence behind these policies.

So, if you enjoyed this video, please like, subscribe, and leave a comment below if you have any questions.

You’ve been watching Economics Unpacked, exploring key questions and policies for economic development with world-leading experts, in a way that everyone can understand.

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