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,
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)
2000
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 Source of resilience in tough times
Support for growth and productivity in good times
Mechanism for social inclusion
SP and economic growth (Alderman&Yemtsov, 2012) 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
Household
consumption
Poverty and
inequality
Education
Health
Labour
Human
capital
Labour
productivity
Social
protection
Economic
performance
Various
instruments
Return
Direct effects
Behavioural
effects
Financing
Child
wellbeing
Livelihoods and
productive investments
Physical
capital
Spillovers and
local multiplier
Mideros, Gassmann, Mohnen 2012
Poverty reduction of SP in the EU
Caminada & Goudswaard 2008
Increase in poverty rate in the
absence of social protection
programs
and low-income countries
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]
Return to education for households:
Total income: [0.037 , 0.052]
Farm income: [0.069 , 0.118]
Off-farm income: [0.185 , 0.250]
Philippines
Ghana
Schady, 2000
Jolliffe, 2002
Estimating Rates of Returns for Cambodia
Household consumption
Poverty and inequality
Education
(school attendance)
Health
(underweight)
Labour participation
Human capital
Labour productivity
Social protection
Economic performance
Return
Direct (distributional) effects
Behavioural
(income) effects
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.
14.7
11.9
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
RoRC (d=2%) RoRC (d=4%) RoRC (d=6%)
Period
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
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