Tuesday, July 29, 2014

More evidence that giving poor people money is a great cure for poverty

It turns out that the problem of people not having enough money is solved by giving them more money. Photo courtesy of GiveDirectly

As solutions to global poverty go, "just give poor people money" is pretty rock solid. A recent randomized trial found that Kenyans who received no-strings attached cash from the charity GiveDirectly built more assets, bought more goods, were less hungry, and were all-around happier than those who didn't get cash.

But voters and politicians generally prefer giving people specific goods — like housing, food, or health care — rather than plain old cash, for fear that the cash might get misused by unscrupulous poor people. Maybe the recipients will just blow the cash drinking! This particular concern comes up both in domestic and global poverty conversations; Fox News is obsessed with the possibility of people using federal government benefits like food stamps to buy fancy seafood or hang out at strip clubs, but mainstream global development experts often express these concerns too. As Paul Niehaus, the founder of GiveDirectly, once put it, "It is pretty ironic the number of conversations I have had with development people about the poor and their drinking—over drinks."

Now, the World Bank's David Evans and Anna Popova are out with a new paper reviewing what evidence is out there about aid to the global poor and alcohol/tobacco consumption.* They found 19 studies which attempted to measure the effect of cash transfers — both no strings attached ones and ones families receive if they fulfill certain conditions, like school attendance — on the purchase and consumption of "temptation goods"; the studies contained a total of 44 estimates of cash's effect in various contexts. 82 percent of those estimates showed that the transfers reduced consumption of or spending on alcohol and tobacco. The vast majority of those weren't statistically significant, so the best conclusion is that there's no evidence transfers affect drinking or smoking behavior.

They also looked at another 4 studies that asked people who had received transfers if they used the money for alcohol or tobacco. On average, only 1.2 percent said they did; the biggest percentage any study found was 6 percent, and that study was an outlier from the other three. Another two studies asked respondents the percentage of transfer payments being used on alcohol and tobacco; both found an average percentage below 0.5 percent.

"We have investigated evidence from around the developing world, including Latin America, Africa, and Asia," Evans and Popova conclude. "There is clear evidence that transfers are not consistently used for alcohol or tobacco in any of these environments. This is particularly true when relying on randomized trials."

So there you have it: money sent to poor people abroad doesn't get wasted on booze or cigarettes. But it's worth asking whether we should even care how it's spent, ultimately. There's something more than a little unseemly about Westerners casting judgment on poor people halfway across the world for having a beer or a smoke. As the authors' World Bank colleague Jishnu Das once put it, "'does giving cash work well' is a well-defined question only if you are willing to say that 'well' is something that WE, the donors, want to define for families whom we have never met and whose living circumstances we have probably never spent a day, let alone a lifetime, in."

* Hat-tip to Michael Clemens at the Center for Global Development.

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