WHY SHOULD GOVERNMENTS INVEST IN

SOCIAL PROTECTION?
ARGUMENTS IN FAVOR OF CASH TRANSFERS
Franziska Gassmann, MGSoG/UNU-Merit
Lehrvortrag, HBRS, 15. Oktober 2014

Outline

What are cash transfers and how do they fit within a broader social
protection framework?
Link between cash transfers and economic growth and development
Evidence in support of the business case for social protection

What are cash transfers?

Non-contributory transfers
Targeted in one or the other way to poor households or individuals or
those who are vulnerable to poverty
Intended to directly support consumption and access to social services
Financed from government revenues (ev. with donor assistance)
Regular & reliable
Can be conditional or not
Examples:
social pensions, child grants, (un)conditional cash transfers, social
assistance for the poor, disability grants,

2000

2013

In 2000: 72 developing and

emerging countries with at-scale
social protection programs

In 2013: 98 and 33 with pilots (red)

Famous examples:

Brazil: Bolsa Familia,

Namibia: social pension

South Africa: child grant

Mexico: Opportunidades

Ethiopia: Productive Safety net

(reached 7.6 mio people)

India: National Employment

Guarantee Scheme

Bangladesh: Scholarships for girls

(850,000 scholarships provided)

CTs are an important pillar of a comprehensive

social protection system

Source: Gentili & Omano in Hoddinott, 2010

Why focus on cash transfers?

Overwhelming international evidence on positive impacts

Direct reduction of poverty and inequality
Improvement of human capital outcomes

Economic growth is not by definition inclusive, inequality is growing in many

countries
The poorest and most vulnerable population groups may be left behind
The state has an obligation to protect its most vulnerable citizens (human right)

Cash transfers (if well-designed) are progressive and are administratively

less costly than other social protection instruments
Tailor-made design (targeting, conditionality, payment level and mechanism)
Functions well in a stable economy (no shortages of food and other
goods/services)

Non-contributory social protection as economic

investment

Old arguments: human rights, evidence, affordability

Paradigm shift: SP not just as a cost for the economy

SP and economic growth (Alderman&Yemtsov, 2012)

Source of resilience in tough times

Support for growth and productivity in good times
Mechanism for social inclusion
Building and protecting human capital, productive assets
Enhancing community assets, infrastructure
Stabilizer of aggregate demand, improving social cohesion, making reforms feasible

Supported by international evidence (Barrientos, 2012)

Pathways to economic growth

Source: World Bank, 2012

Direct and indirect returns

Direct effects

Social
protection
Various
instruments

Behavioural
effects

Poverty and
inequality
Education
Human
capital

Health

Household
consumption

Child
wellbeing

Spillovers and
local multiplier

Livelihoods and
productive
investments

Labour
productivity

Labour

Return

Financing

Mideros, Gassmann, Mohnen 2012

Physical
capital

Economic
performance

Poverty reduction of SP in the EU

Caminada & Goudswaard 2008

and low-income countries

Increase in poverty rate in the
absence of social protection
programs

Effect on school enrolment

Source: Baird et al. 2013 (meta analysis)

Investments in education pay back

Effect

Country

Source

Return to education for male wage earners:

Mean: [0.110 , 0.148]
Primary education: [0.062 , 0.094]
Secondary education: [0.060 , 0.100]
Tertiary education: [0.162 , 0.196]

Philippines

Schady, 2000

Return to education for households:

Total income: [0.037 , 0.052]
Farm income: [0.069 , 0.118]
Off-farm income: [0.185 , 0.250]

Ghana

Jolliffe, 2002

Estimating Rates of Returns for Cambodia

Direct (distributional) effects

Social protection

Poverty and inequality

Behavioural
(income) effects

Household consumption
Return

Education
(school attendance)

Human capital

Health
(underweight)
Labour participation

Economic performance

Labour productivity

Rates of Return for Cambodia final results

Effect on total household consumption through human capital accumulation, due
to higher school attendance thanks to social transfers.
15.0

14.7
11.9

10.0

5.0
0.0
-5.0
-10.0
Period

-15.0
1

RoRC (d=2%)

9 10 11 12 13 14 15 16 17 18 19 20
RoRC (d=4%)

RoRC (d=6%)

Final remarks

There are compelling arguments for the introduction of conditional or

unconditional cash transfers in low and middle income countries
Direct

impact on poverty reduction and inequality

Long-term impact on human capital development which is a key requisite for
inclusive growth

Cash transfers are not the only social protection instrument

The

country context is decisive in choosing the appropriate instrument

Cash transfers are a worthwhile investment as they generate positive

rates of return over time
There

is clearly a business case for cash transfers