Cash transfers and investments in Latin America (Bolivia, Mexico)

Programs that transfer cash to targeted groups of people, such as the poor or the elderly, are increasingly used as poverty-alleviation mechanisms in the developing world. This dissertation studies the impact of cash transfer programs on productive investments made by beneficiary households, and the resulting changes in standard of living as measured by consumption. Empirical evidence is analyzed in the context of the BONOSOL old age pension program in Bolivia and for the OPORTUNIDADES conditional cash transfer program in Mexico. Impoverished households that gain access to increased liquidity from the transfer program invest more in productive activities such as agricultural production and micro-enterprise. The returns on these investments result in increased consumption. These results suggest that, through the investments mechanism, cash transfers to the poor may have a lasting effect on improving living standards.; The first chapter of this dissertation studies the effect of the BONOSOL pension to elderly Bolivians on household consumption and investments. Pension eligible households in rural areas increase food consumption by two times the value of the transfer. Even if the marginal propensity to consume food was equal to one, this result indicates that households multiply the transfer to obtain a greater aggregate benefit than if the money had been spent directly on final goods. Rural beneficiary households in Bolivia, in possession of land assets but with limited access to monetary capital, obtain multipliers on the transfer through investments in agricultural production. In support of this argument, a substantial amount of the increase in food consumption is derived from home production of meats, vegetables, and other agricultural products. Additional evidence on farm investments, land use and animal ownership supports the hypothesis that beneficiary households use the pension to boost consumption through more home production.; Chapter 2 studies the effect of the OPORTUNIDADES conditional cash transfer program on consumption and investments of poor households in rural Mexico. Transfers from the OPORTUNIDADES program result in increased investments in micro-enterprises and agricultural production. For each peso transferred, beneficiary households use 75 cents to purchase consumption goods and services, and invest the rest. The investment yields a 1.2 cent permanent increase in consumption for each peso transferred. These estimates indicate that, by investing transfers, beneficiary households increased their consumption by 24% after six years on the program. These results suggest that cash transfers to the poor raise long term living standards which may be sustained even after program benefits end.; Chapter 3 considers behavioral responses to the BONOSOL pension program by estimating the effect of the program on household composition, labor supply and education. I find only minor changes in the composition of pension eligible households for select age-gender groups. Prime age adults in eligible households increase labor force participation, while female beneficiaries over the age of 65 reduce both their propensity to work as well as the number of hours worked. Finally, I find that children ages 11 to 17 who live in a pension eligible household have an increased likelihood of school enrollment.