Cash or Condition? WPS5259. Policy Research Working Paper Evidence from a Randomized Cash Transfer Program. Impact Evaluation Series No.

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1 WPS5259 Policy Research Working Paper 5259 Impact Evaluation Series No. 45 Cash or Condition? Evidence from a Randomized Cash Transfer Program Sarah Baird Craig McIntosh Berk Özler The World Bank Development Research Group Poverty and Inequality Team March 2010

2 Policy Research Working Paper 5259 Abstract Are the large enrollment effects of conditional cash transfer programs a result of the conditions or simply the cash? This paper presents the first experimental evidence on the effectiveness of conditionality in cash transfer programs for schooling. Using data from an intervention in Malawi that featured randomized conditional and unconditional treatment arms, the authors find that the program reduced the dropout rate by more than 40 percent and substantially increased regular school attendance among the target population of adolescent girls. However, they do not detect a higher impact in the conditional treatment group. This finding contrasts with previous non-experimental studies of conditional cash transfer programs, which found negligible income effects and strong price effects on schooling. The authors argue that their findings are consistent with the very low level of incomes and the high prevalence of teen marriage in the region. The results indicate that relatively small, unconditional cash transfers can be cost-effective in boosting school enrollment among adolescent girls in similar settings. This paper a product of the Poverty and Inequality Team, Development Research Group is part of a larger effort in the department to improve the design and cost-effectiveness of cash transfer programs and to assess their impacts for a wider range of policy-relevant outcomes. Policy Research Working Papers are also posted on the Web at org. The author may be contacted at bozler@worldbank.org. The Impact Evaluation Series has been established in recognition of the importance of impact evaluation studies for World Bank operations and for development in general. The series serves as a vehicle for the dissemination of findings of those studies. Papers in this series are part of the Bank s Policy Research Working Paper Series. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team

3 CASH OR CONDITION? EVIDENCE FROM A RANDOMIZED CASH TRANSFER PROGRAM 1 SARAH BAIRD CRAIG MCINTOSH BERK ÖZLER Keywords: Conditional Cash Transfers, Education, Adolescent Girls, Marriage JEL Codes: C93, I21, I38, J12 1 We are grateful to seminar participants at CEGA, George Washington University, IFPRI, NEUDC, Paris School of Economics, Toulouse School of Economics, UC Berkeley, UC San Diego, University of Namur, and the World Bank for helpful comments. We gratefully acknowledge funding from the Global Development Network, the Bill and Melinda Gates Foundation, National Bureau of Economic Research, World Bank Research Support Budget Grant, as well as several trust funds at the World Bank: Knowledge for Change Trust Fund (TF090932), World Development Report 2007 Small Grants Fund (TF055926), and Spanish Impact Evaluation Fund (TF092384), Gender Action Plan Trust Fund (TF092029). The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development or the World Bank. Please send correspondence to: sbaird@gwu.edu, ctmcintosh@ucsd.edu, bozler@worldbank.org.

4 1. INTRODUCTION A large and empirically well-identified body of evidence has demonstrated the ability of Conditional Cash Transfer programs (CCTs) to raise schooling rates in the developing world (Schultz 2004; de Janvry et al. 2006; Filmer and Schady 2008, among many others). Due in large part to the high-quality evaluation of Mexico s PROGRESA, CCT programs have become common in Latin America and are beginning to spread to other parts of the world. As of 2007, 29 developing countries had some type of CCT program in place (in some cases, more than one) and many other countries were planning one. (Fiszbein and Schady 2009) 2 However, designing a new CCT program remains a complex task. Many difficult decisions need to be made regarding the selection of beneficiaries, the nature (and enforcement) of conditions, and the level and structure of payments. While numerous evaluations of CCTs have been conducted in Latin America, most studies evaluate a program with a single, fixed set of contract parameters. Therefore, the evidence base needed by a government to decide how to design a new CCT program is either limited or nonexistent in several critical dimensions. Among this set of design parameters, the issue of conditionality is seemingly the most controversial. Conditional transfer payments seek to constrain the actions undertaken by the beneficiaries, and hence cannot result in more welfare for the society as a whole than unconditional cash transfers in the absence of market failures (Ferreira 2009). Unconditional transfers generate a pure income effect, and can be expected to increase schooling either if households are credit constrained in their human capital investment decisions or simply through the concavity of utility in consumption. The conditionality imposed by the program increases the relative benefit of schooling, generating a further price effect on the household decision to invest in schooling. The relative magnitude of these two effects has been hard to identify empirically, a distinction that is of much 2 In fact, there is now a pilot CCT program in New York City that builds on the lessons learned from international CCT programs. For more on Opportunity NYC, see: 1

5 more than academic interest since it bears directly on the optimal design of (conditional) cash transfer programs. The ideal experiment to answer this question i.e. a randomized controlled trial with one treatment arm receiving conditional cash transfers, another receiving unconditional transfers, and a control group receiving no transfers has not previously been conducted anywhere. 3 The evidence that can be gleaned so far is either from model-based simulation exercises (Bourguignon, Ferreira, and Leite 2003; Todd and Wolpin 2006) or from recent studies of interventions with implementation glitches (de Brauw and Hoddinott 2008; Schady and Araujo 2008). This paper describes the schooling impacts of a randomized intervention in Malawi that provided cash transfers to adolescent girls to stay in school. In the experiment, 176 enumeration areas (EAs) were randomly assigned treatment or control status. Within the group of 88 treatment EAs, a sub-group of EAs was then randomly assigned to receive either conditional or unconditional transfers. This experimental design allows us to isolate the impact of the conditionality itself, above and beyond the simple income effect of a given transfer. In addition, the total transfers to the household were also independently randomized and took integer values between $5 and $15 per month. 4 This additional layer of experimentation with transfer size allows us to assess the income elasticity of schooling outcomes and to discern whether the marginal impact of the conditionality varies across the wide range of transfer amounts. We hope to contribute to the literature and inform 3 To our knowledge, there are two other studies that plan to examine the impact of the conditionality in the near future. Impact Evaluation of a Randomized Conditional Cash Transfer Program in Rural Education in Morocco has three treatment arms: unconditional, conditional with minimal monitoring, and conditional with heavy monitoring (using finger printing machines at schools). A similar pilot in Burkina Faso has comparative treatment arms for conditional and unconditional transfers. Accumulation of reliable evidence on the effect of the conditionality on various outcomes of interest, such as those presented in this paper and to come from these other studies, promises to be of significant use to policy-makers designing cash transfer programs in the near future. 4 World Bank (2009) argues that the key parameter in setting benefit levels is the size of the elasticity of the relevant outcomes to the benefit level. However, random variation in transfer size among program participants is rarely, if ever, observed in cash transfer programs around the world. 2

6 policymakers as to which combination of contract parameters might allow cash transfer programs to deliver the largest impacts per dollar spent. We find that while the program has a strong impact on school enrollment, there is no difference in the size of that impact between the two randomized treatment arms. The findings become slightly more favorable towards the conditional treatment group when we analyze school attendance instead of enrollment, but because the basic income effect associated with the unconditional transfers is large, the marginal impact of the conditionality on schooling outcomes remains relatively small and is never statistically significant regardless of the outcome measure used in the analysis. Furthermore, increasing the total amount transferred to the household does not significantly improve schooling outcomes and the impact of the conditionality does not vary by this amount. Finally, we consider the relationship between income, schooling, and marriage for adolescent girls in Malawi, and show that while unconditional cash transfers nearly eliminate marriage in our study population, the conditional cash transfers have no effect on it. In the next section, we provide a brief review of the literature on the relative importance of income and price effects in explaining the overall impacts of cash transfer programs. Because this literature is based solely on studies in Latin America, we also present some summary evidence contrasting Malawi with Latin America in terms of mean income and poverty levels. Section 3 describes the study design, and Section 4 our empirical methodology. Section 5 presents the core empirical results of the paper using Intention to Treat Effects and examines the heterogeneity of these impacts. We also discuss program impacts on marriage in this section. In Section 6, we conduct additional checks to test the robustness of our findings, and Section 7 concludes. 3

7 2. EVIDENCE FROM THE LITERATURE 2.1. Disentangling the Price Effect from the Income Effect in CCT Programs In the absence of externalities, conditional cash transfers are worse than distributing an equivalent amount of unconditional cash. Das, Do, and Özler (2005) and Fiszbein and Schady (2009) provide reviews of the kinds of externalities that can justify the use of CCTs, which include physical and learning externalities as well as market failures arising from decisions made through an intra-household bargaining process. 5 Political economy considerations can also play a significant role in the design of conditional cash transfer programs (Gelbach and Pritchett 2002). Regardless of the specific nature of the externality being addressed by the conditionality, it is important to know how much of the impact of CCT programs is a result of the income effect associated with the transfers and how much is due to the price change implicit in the condition. Conducting randomized pilots to answer this question can be difficult and expensive and, to date, experimental evidence has not been available to shed light on this issue. What we do know on the topic comes mainly from accidental glitches in program implementation or structural models of household behavior. Evidence on the marginal effect of conditionality on school enrollment points us in favor of the conditions. Based on the fact that some households in Mexico and Ecuador did not think that the cash transfer program in their respective country was conditional on school attendance, de Brauw and Hoddinott (2008) and Schady and Araujo (2008) both find that school enrollment was significantly lower among those who thought that the cash transfers were unconditional. A reasonable objection to this type of identification strategy is that observed heterogeneity in the accuracy of implementation may be correlated with a set of unobserved factors that are driving the outcome. 5 For example, Bursztyn and Coffman (2009) argues that parent-child conflict in schooling preferences can give rise to sub-optimal school attendance and provides evidence that the conditionality imposed by a government program helps solve the monitoring problem for the parents, who cannot control their children s school attendance. 4

8 An entirely different approach is the structural one, where a model of household behavior is calibrated using real data, and then the impact of various policy experiments is simulated. These exante program evaluations provide further evidence that the impacts of CCT programs on schooling outcomes (and related outcomes, such as child labor) would have been significantly attenuated without the conditionality. In Brazil, Bourguignon, Ferreira, and Leite (2003) find that unconditional transfers would have no impact on school enrollment; while Todd and Wolpin (2006) report that the increase in schooling with unconditional transfers would be only 20% as large as the conditional transfers in Mexico and the cost per family would be an order of magnitude larger. 6 Another key design parameter in CCT programs is the benefit level, which crucially depends on the size of the elasticity of the relevant outcomes to the transfer amounts. To our knowledge, there are no CCT programs under which the transfers are randomly varied across beneficiary households to estimate how schooling outcomes may improve as the transfer amount is increased. One study that addresses the issue of the impact of transfer size on enrollment is from Cambodia (Filmer and Schady 2009b). 7 The program offered two different transfer amounts to students based on their poverty status at baseline conditional on school enrollment and regular attendance. Using a regression discontinuity design, the authors find that while the difference between the impact of a 6 There is also some evidence that the condition that pre-school children receive regular check-ups at health clinics (enforced by a social marketing campaign, but not monitoring the condition) had a significant impact on child cognitive outcomes, physical health, and fine motor control. Two studies in Latin America Paxson and Schady (2007) and Macours, Schady, and Vakis (2008) show behavioral changes in the spending patterns of parents and households that they argue to be inconsistent with changes in just the household income. These studies, however, cannot isolate the impact of the social marketing campaign from that of the transfers being made to women. 7 Structural models of household behavior have also been used to simulate the expected impacts of different transfer amounts on various outcomes. Bourguignon, Ferreira, and Leite (2003) find that doubling the transfer amount under Brazil s Bolsa Escola would have halved the percentage of children in poor households not attending school; while Todd and Wolpin (2006) estimate that incremental increases in transfer size in Mexico would have diminishing effects on school attainment. 5

9 $45 scholarship and no scholarship was large, the difference between the impact of a $60 scholarship and the $45 scholarship was quite small. 8 In short, the evidence to date suggests that conditionality plays an important role in improving school enrollment and unconditional transfers are unlikely to be effective in reaching the same goal. Critically, however, all of this evidence comes from Latin American countries (Brazil, Ecuador, and Mexico). These countries are not only substantially wealthier than many countries in Sub-Saharan Africa, but also possess stronger institutional capacities to implement conditional cash transfer programs. We contrast the income levels in these countries with that in Malawi in some detail in the following section and discuss the obvious ways in which these differences may matter for the relative effectiveness of unconditional and conditional cash transfers Contrasting Latin America with Malawi According to the World Development Indicators (2009), the GNI per capita (PPP, in current international US$) in 2008 was $10,070 in Brazil, $7,760 in Ecuador, and $14,270 in Mexico. In stark comparison, the same figure was $830 in Malawi. The same data source indicates that the percentage of the population living under $1.25 a day (PPP) was 3% in Mexico, 8% in Brazil, 10% in Ecuador, and 74% in Malawi for the period (the latest period for which poverty figures are available for Malawi). This large difference in per-capita incomes between the Latin America and Sub-Saharan Africa should not be underestimated as a potential cause of heterogeneity in the impact of UCT and CCT programs on schooling outcomes in these two regions. The idea that schooling rates would increase with income can emerge simply from the concavity of the utility function in consumption, as well as from any type of credit constraint in human capital investments. Hence, in poorer and/or 8 It is worth noting that these estimates are not pure elasticities as they include the impact of the conditionality. Pure elasticity of the outcome with respect to transfer size can only be estimated by exploiting exogenous variation in unconditional transfer amounts. 6

10 credit constrained environments, we would not only expect the existing schooling rates to differ, but also the marginal effect of income on schooling to be stronger. Again, according to the World Development Indicators (2009), the net secondary school enrollment in 2007 is 77% in Brazil, 59% in Ecuador, and 72% in Mexico, while it is only 24% in Malawi. 9 The finding of a very small income effect and a much larger price effect in Latin America is consistent with the higher average incomes and schooling rates in the region: most of the children who drop out of school may be doing so not because their households are not able to afford to send them to school, but for other reasons. However, with its much lower initial schooling rates, we would expect to observe a stronger income effect in Malawi, making UCT programs appear relatively more attractive. One other important difference regarding the lives of adolescent girls in Latin America and Sub-Saharan Africa is age at first marriage, which has a direct bearing on schooling decisions. Among women aged 25-49, using Demographic Health Survey (DHS) data, we find that more than 51.2% of Malawian women are married by age 18, while the same figure is 33.3% in Mexico, 31.6% in Ecuador, and 22.7% in Brazil. 10 The fertility rate among women ages in 2007 was 135 births per 1,000 women in Malawi, compared with 83 births in Ecuador, 76 in Brazil, and 65 in Mexico (WDI, 2009). Clearly, adolescent girls in Malawi, where the legal age of marriage currently stands at 16, start childbearing and get married much earlier than their counterparts in Brazil, Ecuador, and Mexico. 11 The relative impact of CCT and UCT on school enrollment may then, in part, depend on their impact on childbearing and the incidence of marriage. We discuss this issue in more detail in Section These figures are not helped by the fact that students have to pay non-negligible school fees at the secondary level in Malawi. The net enrollment rates for primary school, which is free in Malawi, are much closer at 93%, 97%, 98%, and 87%, respectively. 10 The DHS data are most recent (2004) for Malawi, whereas the rest of the DHS data date back to 1987 for Mexico and Ecuador, and 1996 for Brazil. 11 Legal age of marriage in Malawi has recently been raised from 15 to 16. As this paper was being written, the parliament was debating whether to raise the legal age of marriage to 18. However, in practice, it is not uncommon for girls to attend initiation rites at a very early age and be married at 15 or younger. 7

11 3. SURVEY AND RESEARCH DESIGN 3.1. Study Setting and Sample Selection Malawi, the setting for this research project, is a small, poor country in southern Africa. Its population of almost 14 million in 2007 is overwhelmingly rural, with most people living from subsistence farming supplemented by small-scale income-generating opportunities that are typically more available to men than they are to women. The country is poor even by African standards: Malawi s 2008 GNI per capita figure (PPP, current international $) of $830 is barely 40% of the Sub- Saharan African average of $1,991 (World Development Indicators Database, 2009). Zomba district in the Southern region was chosen as the site for this study. Zomba is a highly populated district with high rates of school dropout and low educational attainment, characteristic of Southern Malawi. According to the Second Integrated Household Survey (IHS-2, conducted by the National Statistical Office in 2005), the biggest reason for dropout from school is financial. Hence, a cash transfer program has a good chance of reducing dropout rates in Zomba. Zomba also has the advantage of having a true urban center as well as rural areas. Clusters in Zomba were selected from the universe of EAs produced by the National Statistics Office of Malawi from the 1998 Census. Our stratified random sample of 176 EAs consists of 29 EAs in Zomba town, 8 trading centers in Zomba rural, 111 population areas within a 16- kilometer radius of Zomba town, and another 28 EAs that are located outside of this radius. Each household in the 176 sample EAs was listed using a short two-stage listing procedure, which identified the universe of never-married females, aged The target population was then 12 The target population of year-old, never-married females was selected for a variety of reasons. As the study was designed with an eye to examine the possible effect of schooling cash transfer programs on the risk of HIV infection, the study focused on females, as the HIV rate among boys and young men of schooling age is negligible. The age range was selected so that the study population was school-aged and had a reasonable chance of being or becoming sexually active during the study period. Finally, a decision was made to not make any offers to girls who were (or had previously been) married, because marriage and schooling seem to be mutually exclusive in Malawi at least for females in our study district. 8

12 stratified into two main groups: those who were out of school at baseline (baseline dropouts) and those who were in school at baseline (baseline schoolgirls). Of these two strata, the baseline schoolgirls, who form 87% of the target population within our study EAs, are the subject of this paper. 13 In each EA, we sampled 75%-100% of all eligible baseline schoolgirls, where the percentage depended on age. This sampling procedure led to a total sample size of 2,915 schoolgirls in 176 EAs, or an average of 16.6 schoolgirls per EA. After subtracting a randomly selected group of 629 girls, who were assigned control status within treatment EAs to measure spillover effects, the sample in this paper consists of 2,286 schoolgirls in 161 EAs Research Design and Intervention Treatment status was assigned at the EA level, so the sample of 176 EAs was randomly divided into two equally sized groups: treatment and control. The sample of 88 treatment EAs was further divided into three groups based on the treatment status of the baseline schoolgirls: in 46 EAs (a randomly determined share of) schoolgirls received conditional transfers; in 27 EAs schoolgirls received unconditional transfers; and in the remaining 15 EAs they received no transfers. 14 As the group baseline schoolgirls who received no treatment in 15 EAs are part of the 629 girls sampled to study spillover effects, and therefore are not the subject of this paper, we are left with a sample of 2,286 schoolgirls in 161 EAs (1,497 in 88 control EAs, 506 in 46 CCT EAs, and the remaining 283 in 27 UCT EAs). 13 While outcomes for baseline dropouts were also evaluated under the broader study, the conditionality experiment was not conducted among this group. As the sample size for this group is quite small (804 girls in 176 EAs less than 5 girls per EA in our two-year panel of individuals), dividing the treatment group into a CCT and a UCT group would yield an experiment with low statistical power. Hence, the treatment group in this stratum received CCT offers only. See Baird et al. (2009) for program impacts on this group. 14 In these 15 EAs, only baseline dropouts received treatment. 9

13 From December 2007 through January 2008, offers to participate in the program were made. 15 Of the 789 schoolgirls in the baseline survey who were originally assigned to the treatment group, 6 were subsequently deemed ineligible, 15 could not be located, and one refused to participate in the program. Because we continue to code all 22 of these non-compliers as treated, we effectively estimate the Intention to Treat Effect of the original treatment assignment. While the assignment of conditionality status is at the EA level, meaning that treatment status with respect to conditionality does not vary within EAs, the treatment unit is the adolescent girl and not the household. This means that the study sample contains households with more than one eligible girl in the program, of whom all, some, or none may have treatment status within treatment EAs. As part of the offer, a detailed informational sheet was given to each household that detailed the transfer amount, as well as the conditions of the contract. 16 The total transfer to the household (per treated girl) was randomly varied between $5 and $15 per month to estimate the elasticity of schooling outcomes with respect to transfer size. 17 In addition, the conditional offer sheet for secondary school CCT recipients stated that their school fees would be paid in full directly to the school. 18 In the unconditional treatment arm, for households with girls eligible to attend secondary schools, the monthly transfer amounts paid were adjusted upwards by an amount equal to the 15 Due to uncertainties regarding funding, the initial offers were only made for the 2008 school year (conditional on adequate school attendance for the girls receiving the conditional transfers). However, upon receipt of more funds for the intervention in April 2008, all the girls in the program were informed that the program would be extended to also cover the 2009 school year. 16 For examples of a conditional and an unconditional offer letter, please see Appendix A. 17 The total transfer amount offered to the household consisted of a transfer to the parents and a separate transfer given directly to the girl. The household amount was randomly varied across EAs from $4/month to $10/month, with all recipients in a given EA receiving the same amount. To determine their individual transfer amounts, girls participated in a lottery, where they picked bottle caps out of an envelope to win an amount between $1 and $5 per month. We do not exploit the random variation in the share that was directly transferred to the girl in this paper as it falls outside the scope of this study. Our impact estimates hence represent impacts averaged over these random shares transferred to the girl. 18 Primary schools are free in Malawi, but student have to pay non-negligible school fees at the secondary level. The program paid these school fees for students in the conditional treatment arm upon confirmation of enrollment for each term. Private secondary school fees were also paid up to a maximum equal to the average school fee for public secondary schools in the study sample. 10

14 average secondary school fees paid in the conditional treatment arm. 19 This ensured that the average transfers offered in both the conditional and unconditional EAs were identical and the only difference between the two groups was the conditionality of the transfers on satisfactory school attendance. At the time of the offer, the photographs of the participant (if not taken at the time of survey) and her parent or designated guardian to receive the household payment were taken. Payments were only made to those people and one designated proxy. Adolescent girls and their parents/guardians were asked to bring such proxies to the first cash payment point for them to be identified and photographed. For the rest of the program, no one other than the girl, her parent/guardian, and the designated proxy was allowed to pick up any payments. Recipients were informed of the location and the timing of the first monthly transfer payment during the offer stage, and about the next transfer date when they picked up each transfer. The cash payment points were chosen to take place at centrally located and well-known places, such as churches, schools, etc. For each EA, they were selected so that no recipient had to travel for more than 5 kilometers to the cash payment point. Each recipient was given a sealed envelope with her name on it. 20 After counting the amount and making sure it was correct, each recipient signed a piece of paper to acknowledge the receipt of the money. The cash transfers took place monthly and at each meeting some basic information was collected for each sample respondent, such as who was picking up the money (girl, guardian, or proxy), how far they had to travel, etc. As part of the transfer program, monthly school attendance 19 Because the average school fees paid in the conditional treatment arm could not be calculated until the first term fees were paid, the adjustment in the unconditional treatment arm was made starting with the second of 10 monthly payments for the 2008 school year. The average school fees paid for secondary school girls in the conditional treatment group for Term 1 was multiplied by three (for each of the three school terms) and divided by nine (the number of remaining payments in 2008) and added to the transfer received by household with girls eligible to attend secondary school in the unconditional treatment arm. The NGO implementing the program was instructed to make no mention of school fees but only explain these households that they were randomly selected to receive this bonus. 20 The young woman and the guardian are given separate envelopes, each with their own randomly assigned amount. 11