Can Aid Programs Generate Equal Opportunities to Escape Poverty?

October 11, 2016

Are poverty alleviation programs short-term solutions or do they provide vulnerable individuals with opportunities to escape long-run deprivation? This policy question has been an ongoing source of debate between economists.1 For instance, Jeffrey Sachs has defended these programs, claiming that aid generates incentives for the poor to lift themselves out of poverty. William Easterly disagrees, arguing that aid creates dependency and that policymakers should instead focus on promoting economic growth.

One problem in obtaining a definitive answer to the aid question is that vulnerable individuals do not have the same opportunities to escape poverty. In an ideal world, all people should start from equal initial conditions and outcomes should differ solely because of effort. For example, indigenous children should be able to receive the same amount and quality of education as white children when both have the same ability. In reality, we observe that the former will tend to complete less schooling than the latter. Therefore, vulnerable individuals do not face a “level playing field” in education, one of the main pathways to escape poverty.

Vulnerable children can be identified in several ways, but perhaps one of the most reasonable is by using circumstances that are beyond their control. Attributes such as ethnicity, gender, parental education, and if the child is born into a household with a single parent or both parents, are arguably factors that children have no control over. Determining whether individuals in less favorable circumstances benefit more from poverty alleviation programs would help establish if aid does indeed provide better opportunities for these individuals to improve their well-being.

Fortunately, the spread of a new type of poverty alleviation program -conditional cash transfers (CCTs)- allows providing such evidence. CCTs aim to improve current welfare and promote investment in human capital to prevent future deprivation. These interventions transfer cash to households conditional on fulfilling certain requirements. Typical conditionalities include regular school attendance for children and periodic health check-ups for infants, toddlers, and pregnant women. Furthermore, these programs tend to be randomly allocated, which simplifies their evaluation.

While hundreds of these programs exist, some of the most studied CCTs have been deployed in Honduras (PRAF-II), Mexico (Progresa), and Nicaragua (RPS). A number of researchers have estimated how these programs affect educational attainment, health, nutrition, consumption, labor supply, and other socioeconomic outcomes. In general, they find positive effects of these programs on the well-being of the poor. However, fewer studies have quantified whether vulnerable groups gain more from these interventions in terms of access to primary education.

Before receiving transfers, vulnerable beneficiaries aged 6-12 in all three countries had worse access to primary education. Parental education surfaces as the most relevant source of enrollment disparities, with a gap between children in high and low education environments of -6.6, -2, and -16.2 percentage points in Honduras, Mexico, and Nicaragua, respectively. Figure 1 shows these initial inequalities in access.

Figure 1. Inequality of Educational Opportunities by Parental Education

                   

Source: Author’s calculations based on program surveys.

Did cash transfers improve equality of opportunities in education? The enrollment distribution becomes more egalitarian due to the programs, as Figure 1 shows. The previous gaps between high and low education environments fall to -3.4, -0.6, and -6.5 percentage points in Honduras, Mexico, and Nicaragua, respectively. While opportunities are not completely equalized, there is definitely a marked improvement.

In summary, the evidence suggests that aid in the form of CCT programs does provide vulnerable individuals with opportunities to escape long-run deprivation and “levels the playing field” in terms of access to primary education. However, while this is a positive result, establishing equal educational opportunities is only one piece of the puzzle. The next step is to determine whether children who benefit from poverty alleviation actually seize these opportunities to lift themselves out of poverty. With further evidence, the aid effectiveness question posed by Sachs and Easterly may become easier to answer.


Notes:

1. This article is based on my recent study “The Impact of Conditional Cash Transfers on Educational Inequality of Opportunity”, Latin American Research Review, 49(2): 153-175.

 
 

 

About Author(s)

Andrés Ham
I am a Honduran PhD student in Agricultural and Applied Economics at the University of Illinois. My interests include Applied Econometrics, Inequality, and Development Economics. Most of my research is empirical and focuses on Latin America and developing countries.