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Mexico’s PROGRESA: Using a Conditional Cash Transfer Program to Invest in Human Capital

Paul Gertler

The World Bank

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Extract:

One of the Tragedies of Poverty is its Intergenerational Transmission

Children who grow up in poverty remain poor
- Poor invest less in children’s health & education

Enter adulthood without “basic capabilities”
- Not able to take advantage of labor market opportunities
- Less capable of pulling themselves out of poverty
- Lower quality of Life


Health is a Critical “Capability”

Most Long-Term Poverty Alleviation Policies
- Focus on Schooling

But, Health is also important
- Health & Nutrition in formative years affects growth & cognitive development
- Healthier kids get more schooling & do better in school
- Healthier adults have higher wages & higher quality of life


PROGESA Addresses Immediate & Long-Term Problems of Poverty

Cash transfer Immediate needs
- Hunger
- Disease and illness
- Living conditions

Break inter-generational transmission
- Invest in children’s Education, Health & Nutrition
- Improve children’s “capabilities”
  • Pull themselves out of poverty

  • Lead a high quality of life


PROGRESA is an Incentive-Based Welfare PROGRAM

Cash transfer is used as incentive to invest in human capital
- Education, Health & Nutrition
- Cash conditional on staying in school, preventive health care, nutrition monitoring

Primarily focused on children
- Adults benefit as well (health)


PROGRESA is a Big Program

Rural Program 1997-2000
- 2.6 million families from 50,000 villages
- 40% of rural families

Urban Expansion 2001-2003
- Added 2 million families

Annual Budget
- US$2.6 Billion budget or 0.5% of GDP


Traditional Approaches to Improving Health

1. Cash transfer Programs
2. Improving Programs
   - E.g. prenatal, family planning, nutrition monitoring & supplement, primary care…
   - Access (travel time & prices)
   - Availability & quality services
   - Patient knowledge about availably and efficacy


Do Cash Transfer Programs Have an Impact on Health?

Assume problem is lack of income
- But, families may have other priorities for cash

Evidence?
- Currie (2000) finds no effect in US
- Dulfo (2001) finds some effect in South Africa

Mixed evidence on income effect on health in developing countries


Expanding Supply Has Less than Desired Effect

Mixed evidence these programs have impact
- No big increases in population health indicators

Problems:
- Low take-up rates
- Selected program participation
  • Most needy least likely to choose to participate

  • Non-participants are ones who get no care

  • Participants substitute program for other care


PROGRESA Overcomes Problems of Traditional Approaches

Relaxes income constraint through cash transfer

Provides financial incentive to use health services
- 97% take-up rate (Mexico’s PROGRESA)
- No selection effects
- Those most in need get access to services


In Contrast to Traditional Approaches…..

We Find That PROGRESA…

Improved child health
- Reduced hospital inpatient stays
- Reduced morbidity
- Taller & Less Anemia

Improved adult health
- Reduced hospital inpatient stays
- Reduced illness days
- Improved stamina


PROGRESA Also Overcame Political Economy Problem

Politicians reluctant to spend on investments that have long-term return
- e.g. child health & nutrition
- Politicians come up for election before families fully benefit

Cash part of CCT attractive as yields short-run political payoff


Use a Randomized Experiment to Evaluate Impact on Child Health

Randomized 506 rural villages into control and treatment groups

After 18 Months Find that PROGRESA Improved child health as indicated by
- Reduced morbidity
- Taller & Less Anemia

After 5 years find big effects on growth & physical health but little on cognitive develop.




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