Providing cash grants to the poor without any strings attached has been shown to have important welfare benefits for recipients, including significant increases in income, assets, psychological wellbeing, and female empowerment. Yet less is known about how this sudden influx of income affects the rest of the village, and in particular, the effects on non-recipients. In western Kenya, researchers are evaluating the impact of unconditional cash transfers, provided by GiveDirectly, on local economic activity, prices, household welfare, fundraising for public goods, and psychological wellbeing, both in communities where transfers are distributed and in neighboring areas.

Policy Issue 

Previous research has found that providing cash grants to the poor without any strings attached can have important welfare benefits for recipients, including significant increases in income, assets, psychological wellbeing, and female empowerment.1 Unconditional cash transfers, which have relatively low administration and procurement costs and allow recipients to identify their own needs, are quickly growing in popularity as a tool for poverty alleviation. Yet little is known about how this sudden influx of income affects the local economy, including non-recipients. Does the injection of funds stimulate wider economic activity or change the price of goods? Do the positive impacts spill over to non-recipients, or alternatively, do cash transfers have negative economic or psychological effects on those who do not receive cash as the result of higher prices or the perception of being relatively less well-off? Answering these questions will contribute to improving the design of cash transfer programs.

Context of the Evaluation 

The NGO GiveDirectly, the implementing partner in this study, provides large, unconditional cash transfers to poor households in rural Kenya. The unanticipated one-time transfers of approximately US$1,000 correspond to about one year of consumption for recipient households. While GiveDirectly has worked in Kenya since 2011, this study takes place in where the NGO has not worked before: three subcounties of Siaya County in western Kenya, which are rural areas bordering Lake Victoria.

In addition, Kenya offers a unique context to study the effects of cash transfers on local public finance. It has a long history of local fundraising for public goods through meetings called harambees, which may help facilitate the redistribution of income in villages.

Details of the Intervention 

Researchers are partnering with GiveDirectly to evaluate the impact of unconditional cash transfers on local economic activity, household welfare, fundraising for public goods, and psychological well-being in communities where transfers are distributed and in neighboring areas.

The randomized evaluation is taking place in 655 villages in rural Kenya. In order to identify the program’s effects both within villages and on nearby villages, researchers randomized on two levels: villages and sub-locations (administrative units of about 10 villages each, on average). In “high saturation” sub-locations, a greater number of villages are assigned to treatment status compared “low-saturation” sub-locations. Based on these proportions, villages within each sublocation were then randomly assigned to the treatment group, in which all eligible households received cash transfers, or to the comparison group.

Within treatment villages, GiveDirectly conducted a census to identify all households that met their eligibility criteria: living in a house with a grass-thatched roof. (Researchers conducted their own censuses in all villages to determine eligibility.) The eligible households in treatment villages received a series of three transfers totaling about US$1,000 via the mobile money platform M-Pesa. This is a one-time program, and GiveDirectly will not provide additional financial assistance to households after the final transfer.

Researchers will measure changes in local economic activity, including household income, the number of enterprises, prices, public finance, and psychological wellbeing approximately one year after the transfers are complete.

Results and Policy Lessons 

Project ongoing; results forthcoming.

Sources

 

1. Haushofer, Johannes, and Jeremy Shapiro. "Household response to income changes: Evidence from an unconditional cash transfer program in Kenya." Massachusetts Institute of Technology (2013).