How Cash Transfers Improve Child Development

Abstract

This paper investigates the mechanism(s) through which a large exogenous shock in income affects the investment parents make in child development. The identification strategy exploits the random assignment of a conditional cash transfer program in rural Nicaragua whose objective was to benefit households with very young children. Payments were allocated to mothers who were also subject to repeated information on the importance of varied diets, health and education matters.We show that the cash transfers improved child development via a strong income effect and a change in knowledge toward child rearing practices. However, both mechanisms were effective only in those households where the mother was likely to be already powerful at the baseline. In light of the theoretical model that guides the empirical analysis, we can interpret these results as the mother having a larger marginal willingness to pay for children. However, this difference in preferences starts to play a role only when her decision power is strong, because in this case she is more capable of using at best the additional resources that are made at her disposal.JEL Codes: D13, I15, J13, J16, O15

Household Responses to Cash Transfers

“…This is one of the main reasons why it is commonly used in the literature (e.g. Gitter and Barham, 2008; Schady and Rosero, 2010; Tommasi, 2015). Human capital differences are sound distribution factors because they are predetermined and do not change after the introduction of the grant.…”