Chris Blattman

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Dear governments: Want to help the poor and transform your economy? Give people cash.

I’ve just finished a new paper with a clunky title (the kind that economics referees hopefully love), Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda. It’s with Nathan Fiala and Sebastian Martinez, run along with Innovations for Poverty Action (IPA).

We tackle one of the big questions in development: How to create jobs and speed up the shift from agriculture to industry in developing countries? We look for answers not at the macro level, but with a field experiment and micro-level data in Uganda.

Countries like Uganda have mostly young, poor, populations. No one is unemployed. If you have no income, you’re in trouble. So you scrape by doing odd jobs and low return activities. The real problems are underemployment (not enough hours) and low productivity employment (low return, low wage work).

So how do you create “good” jobs and productive work? Another way of asking this question is “what is holding young people back?” or “what constrains them?”

Every government or NGO program has an answer to this question, even when they don’t know it. From the vast, vast number of training programs–financial literacy, trade skills, life skills–the default answer seems to be “skills”. If you think these programs are worth doing, presumably it’s because you think (1) youth lack these skills, (2) they can’t otherwise get them, and (3) giving them these skills will produce high returns.

Development economics has a slightly different answer. The evidence is pretty pessimistic about job training programs and financial literacy in poor countries. It’s more optimistic about returns to primary and secondary school in poor countries–wages go up maybe 10-15% with every extra year of schooling. Given how much time and money school takes, though, that’s not always the best return.

More and more, economists think that the real constraint is capital. Studies show that the poor, on average, have high-earning opportunities if they get a little cash or equipment. Studies with existing farmers or businesspeople have seen returns of 40 to 80% a year on cash grants.

This gels with economic theory, which says that infusions of capital should expand people’s choice of occupations, self-employment, and earnings. People can’t get access to that capital through loans because credit markets are so broken and expensive. This can be a development trap, or at the very least a drag on growth.

The studies we have, however, overstate what we know. Most of it comes from Asia. Most of it looks at existing businesspeople and farmers only. So we don’t know a lot about giving cash to the very poor and unemployed, or how to help people shift from agriculture to cottage industry–the structural change so fundamental to modern economic growth.

Enter our study. We look at a large, randomized, relatively unconditional cash transfer program in Uganda, one the government designed to stimulate this kind of job growth and structural change.

The Ugandan government did what dozens of African governments are doing under the guise of “Social Action Funds” and “Community Driven Development”: they sent $10,000 to a group of 20 or so young people who applied for it. This is about $400 a person, equal to their annual incomes.

To many people, this sounds like a crazy development strategy. We don’t trust the poor (let alone a bunch of rural 25-year olds) to spend that kind of money responsibly. We want to tie their hands, or make the decisions for them, or at least make them dig useless ditches for three months in exchange for cash.

We wanted to know. So we worked with the government and World Bank to randomize the grants, and followed nearly 2500 people two and four years afterwards.

Here’s the “surprise”: Most start new skilled trades like metalworking or tailoring. They increase their employment hours about 17%. Those new hours are spent in high-return activities, and so earnings rise nearly 50%, especially women’s.

The people who do the best are those who had the least capital and credit to begin with–consistent with the idea that credit constraints are holding back youth. The more tightly coiled the spring, the bigger the bounce on release.

What’s more, credit constraints seem to be less binding on men, since men in the control group start to catch up over time. Female controls do not, partly because they have worse access to starting capital. With the grant they take off, further even than men. Without it, they stagnate, even more so than men.

This is not a unique result. Two weeks ago I put out a report with IPA on a different program in Uganda, with poor women only. their incomes doubled after getting small grants.

Last, we go beyond economic returns and look for broader social effects. Why? The other belief many people hold dearly: Poor, unemployed men are more likely to fight, riot or rebel.

Because of this, governments and aid agencies routinely justify their employment programs on reducing social instability, or promoting cohesion. Indeed, that was the express goal of the Ugandan program.

Even though we see huge economic effects, we see almost no impact on cohesion, aggression, and collective action (peaceful or violent). If that’s true more broadly, we probably can’t justify all this public spending on the grounds of social stability. But the impacts on poverty and structural change alone probably justify big public investment.

So is it time to stop giving people skills? Not entirely. Part of the reason these Ugandan youth did well is that they invested some of their grants–maybe a third–in skills training. But mostly they invested the grant in tools and inventory and inputs. It was their choice.

I used to think skills and capital were like right and left shoes: one’s not so useful without the other. Now I think of capital like the shoes and skills like the laces: if I have capital, i can jog a good pace, but I can’t really run unless I have the skills. But first I need the shoes. (And cash can buy me both.)

The problem is: too many programs just hand out laces. Old, ratty laces that don’t even fit people’s shoes. I don’t know why we do that. Maybe because we academics and NGO workers and elite government officials all live in a world where we ourselves invest in skills because there are things out there called firms and bureaucracies that have capital, and will pay us to use it.

The poorest don’t have firms ready to hire them. Perhaps we need to stop projecting our own labor markets and biases and low opinions of our own self-control onto the poor, and show them the money.

Read the full paper, which has some of the backup for my claims and references above, here. See the project summary and policy brief on the IPA site.

272 Responses


  2. Dear Chris, ICAfrica is a small Canadian NGO working in African small villages to empower hardworking women entrepreneurs since 2007. We have been offering microloans and coaching to poor families who are not able to earn better incomes due to the constraint of Capital. Our typical loan of $50 – $100 allow most of the recipients, (all of them not bankable), to boost their micro-business capitals to between $75 – $200 which immediately allows them to increase their daily profits from about $3 a day to up to $8 or $10 a day. This amounts to a micro-growth rate of over 250% which when multiplied by the millions of poor entrepreneurs, is huge. Not to talk about all the social benefits that come with better earning within rural families. Today, we understands the complexities of extreme poverty within families in sub-Sahara Africa where over 70% (or 800 million) of the population (in 2013) still live on less than $1 a day. We know that dropping large sums of ODA money on large projects is not the only answer. Many pilot projects have shown that working from the bottom-up on the ground and assisting capable but impoverished entrepreneurs and farmers, through efficient and wide distribution of small amounts of micro-loans, is the best approach for getting large numbers of families and people as a whole, out of extreme poverty, quickly. In Ghana, Uganda, Kenya and Nigeria, we have field workers who go into the markets and identify potential loan recipients. In fact, each ICAfrica country office currently has over 10,000 people on our waiting lists of qualified loan recipients. The problem is finding the fund to go around. If this program had been done through the local government bureaucrats of these countries, it would not have been even 10% as successful. Yes, my experience in sub-Sahara Africa is that it is not very difficult to identify large numbers of very poor people who are dying for a little capital to flourish. I totally vote to give the money directly to them and place a small incentive to encourage them to work for it. A 5% interest soft-loan in a country where commercial banks charge 15% is not bad. I would encourage the world’s richest nations who are already donating over $25 billion annually to African governments, to put a larger share of that money directly into the hands of these hardworking entrepreneurs. I would not be asking for too much if I say 50% should be devoted to this type of program while the rest of ODA goes to maintaining and or winding down traditional development programs.

    Eugene Nzeribe, ICAfrica, Ottawa (

  3. I’m convinced of the cash transfer model – but passionately plea for a better discussion of the limitations within this debate. Dismissing non-economic strengthening forms of aid because transferring cash to citizens works well to increase their incomes or improve their economic security does nothing to address the obvious – to improve the overall well-being of people and communities, there needs to be things to CONSUME with that money. For example, getting cash but still having a lack of local health services will not help women gain access to family planning where the services simply do not exist, money to pay for methods or not. If the contraceptive supplies aren’t there, if the nurses aren’t there, if the clinics aren’t there, than having money won’t help provide women the tools they want and need to achieve their desired family size. Same goes for HIV treatment, or education. Money could buy you a private education – if those schools exist in the first place. Having cash on hand is one critically important input to the demand side of the development equation, but we can’t ignore the supply side.

  4. What concerns me the most about these cash transfer programs is the political economy behind them and the incentives they create. Some of these programs even if they are well targeted can create clientelistic behavior between voters and the incumbent, it would depend if these programs are implemented under strict rules or loose rules. Additionaly, these type of programs may open the window for a paternalistic behavior from governments in specially where rule of law and governance indicators are weak. Bottom line, this is not the panacea. The best social policy is to promote growth and job creation with lesser government intervention as posible.

  5. hello
    am very hungry no job or work i live at street from long time no job believe me am searching for charity council or person to saving me swear my almighty god i don’t have breakfast or launch or dinner and i have 2childes I do not know that bought them food please my life at your hand now save me by any amount of money i don’t need to be rich man i need to eating and drinking and live only even if 10000$ make me happy this is small dreams.
    thanks my dear brothers in humanitarian

  6. Money-Capital is one very important factor of production in any economic development. This cash transfer article presents interesting research findings. Thank you
    Prof. Christopher Blattman the good work. I’ve learned a lot from this research paper.

    I can’t agree more with the professor’s findings on this research. In Kenya we have funds going to youth under “Youth Enterprise Development Fund” and more funds going to Women Trust Fund. Lessons learned from your research will be useful to Kenyans.

    However, how about looking at “funding-capital going to communities management companies” in order to engage in high net worth community investments for wealth creation and stimulate high returns. Is there any research or case studies carried on this subject? I’d love to review one.

    My opinion, fund community based, registered trust organisations with clear strategic business/technology development partnership. Such trust organisations must be legal, have good structures, working systems and clear policies of engagement. In real sense trust organisations are not for profit generation, but trust organisations can appoint management companies to plan and manage the community’s resources for profit, tax and dividends ploughed back to the community. To adequately manage, the communities rich resources, profitably there is need for adequate funding for high net worth community based economic development projects. However, funding must be attracted by expert and organised business structures that must promise good returns on investment.

    In this case there is community’s trust organisation-limited by guarantee and a management company-limited liability. This forms a strong strategic partnership between the the two organizations. On one end the community trustees are bound to engage the expert management company and are accountable to the community. As such the appointed management company employs its business strategies and expertise to create wealth out of the local resources (community) mainly factors of production. This type of cooperation build capacities that create local jobs and transfer technology. The management company earns its management fees, pay loans and taxes to government. Depending on the profits & loss policy the community members of the trustee organisation earns their dividends.

    In my opinion, I find this model suitable for attracting local-direct funding to the poor communities anywhere in the world. Take for instance a community setting where especially in Africa, where I come from, Kenya, local communities sit on high value natural resources like industrial raw materials, wild life, ample land, virgin land for agricultural production activities, rivers, lakes, beach fronts etc. Such communities are very poor, living under US1 a day, and are mainly large families. They cannot afford
    to educate their children, afford medical care, good shelter not to mention decent clothing. Decades commence, come, go-by- but the status quo remains in situ. It’s a poverty cycle. The poor in the society need organized “structured” funding to get them out the poverty hole.

    I would be interested in a research paper on the above, if possible setting/focus can be in Kenyan experience.

    Thank you once more.

  7. Good points; however, they are not really new. Hernando de Soto wrote about the shortage of capital as a hindrance to development in his seminal work, The Mystery of Capital, in 2000. It is unfortunate that even as these “lessons” are rediscovered, development assistance agencies and NGOs persist in providing programs and projects that reflect their interests and institutional incentives instead of providing effective support for development .

  8. I thought I should also spare little time to comment on this topic because at one time I would encourage the donor agencies or development partners, funders whatsoever to keep donating directly to Community Development Organizations at grassroots, we for example; involved in empowering the Unemployed Youths in Uganda under our Project NEEDY YOUTHS PRODUCTION & SKILLS TRAINING, this is a program that also benefit the school dropouts, miss-outs, orphans and those who need to develop their talents in acquiring Life-skills. This is good program whereby after training them we encourage them to form what we call Youth Production Cluster Groups / Business centers to help them create jobs and become self-reliant. So by the effect of giving money directly to the Community it’s better than delivering these funds through the government or given ministry. We have heard cases where the sole beneficiaries miss such chances of acquiring money to help them end poverty among themselves hence on the ground people are able to manage such grants. Bravo.

  9. Chris Blattman — thank you for your paper on cash transfers and youth in Northern Uganda. Nathan Fiala came to talk to me about the study when I was running Straight Talk Foundation in Uganda.

    You will be very interested in the tracer study below. We effectively made a very large cash transfer fo several years in a row to young people by funding them for education. It had very extraordinary ripple effects — siblings more likely to be in school, young people building houses for their parents… Those who qualified and acquired jobs as nurses or foresters, for instance, paid for younger bothers and sisters in school. Of those who had jobs, 84% were supporting one sibling in schools and 26% were supporting three or more siblings: 77 former beneficiaries with jobs were supporting 151 siblings in school. The study also sheds light on the psychology of young Ugandans. I bet the increased income that resulted from your cash transfers resulted largely in investments in the young person’s natal family. We had many girls delaying marriage and childbearing to first educate their sibs and improve the welfare of their parents. Thanks for your paper.

  10. Brilliant! To see the problem clearly, those from the First World must get past their own privilege and entitlement. I have heard wealthy Americans overseas argue that the poor couldn’t be trusted with cash because “if they knew what to do with it, then they wouldn’t be poor.” Too many people are invested in projecting moral deficiencies onto the poor and dehumanizing them instead of helping them. The reality is quite the opposite. Most poor people only need an opportunity and a little cash to make the most of it. I look forward to more studies like this.

  11. Awesome paper Chris. What are the implications for inflation if governments in developing countries pursue this prescription?

  12. Another problem is:
    Lets say one takes the 400 USD to give it to one Uruguayan – how will you manage and care for your invesment? Sure, the national central banks are running such programs – but beeing one of the western world you could easily afford it to support one or two or three people on your own wage (of lets say 80k as beeing a US sotware-developer). But no one is doint it – why?
    Because there is no option for you to manage&care for your investment – on the other hand, the programs of the central banks are far to small-sized…

  13. Hi Chris,
    If I’m not mistaken, Lula da Silva did something similar with Bolsa Familia in Brazil, correct?

  14. It’s warming to see confirmation of the idea that people manage their potential best without being micro-managed by the State.

    I’d expect it also helps if there actually _is_ a stable cash currency, and there are at least some others in the local economy with spare cash to purchase services from the poor that you just gave some cash to. It’s little use buying tools and skills, if virtually no one is able to pay you for the services you become able to provide.

    Which comes back to the social harm caused by central fiat-based, fractional reserve banking, and the resulting inevitable constant inflation, aka long term continual theft of assets and buying power from the people.

    The social improvement strategy of handing cash with no strings attached to poor people would probably be even more effective in a market with an allodial form of cash, which also wasn’t in extremely short supply.

  15. Excellent work Dr. Blattman!

    Why is there no comparison made to a Basic Income Guarantees!?

    If I recall correctly, it has been shown that Basic Income Guarantees[1] (free cash without means testing besides citizenship) works incredibly well for both developed and developing countries. Your article comes as no surprise, but is well-written and compelling which is a great boon to BIG. Despite stereotypes of poor people, basic income is used very effectively with little administrative cost (the cash is not used for booze and gambling? how bizarre!):
    – People work more and for a higher wage (exceptions: recently pregnant mothers and students)
    – Domestic abuse plummets
    – People are unemployed LONGER, but use that time to find a job they like more (or create their own!)

    This form of welfare has been supported by people on the right (Friedman, Hayek) and left (Russell). I’m really disappointed it isn’t used to greater effect. Voters and tax-payers have simply no faith in those damned poor people to make the right decision it seems.
    Here’s a great story from in Canada, where it was referred to as Mincome [2]

    BIG also works well in India, where women, in particular, benefit[3].
    A further benefit is it is highly corruption resistant. There are no tests, forms, etc. If you’re a citizen, you get cash. Done.
    Please, anyone, show me some research that shows BIG doesn’t work well.


    PS. There’s an excellent discussion at HackerNews, where my above comment originates.

    [2] A town without poverty?

  16. While this looks very promising from a micro-entrepreneurship/livelihoods point of view, I’m not sure how it addresses speeding up the shift from agriculture to industry – the presumed precursor of industrial development. Its neither making agriculture more efficient nor, from what I can tell, making other industries more efficient.

    Disclaimer: This is based on the blog post only – I’ve not yet read the paper.

  17. Hi Chris. Two things: first, another big paper came out recently on a skills vs. capital theme: did you see this one?

    Second, the outcomes being measured matter a great deal for whether the prescription ought to be “just give money” or not. It bugs me a little to see Panglossian reviews of cash transfers (cf. that claim that money solves all of people’s problems. In particular, looking at early childhood development, money may help a little (see my meta-analysis forthcoming in World Development) but it looks like knowledge is key: extend breastfeeding, be very careful about sanitation, etc. For youths in Uganda and (per the above paper) poor women in Bangladesh it sounds like big impacts on improving livelihood strategies are possible, but I caution those who see this (or anything I guess) as a one-size-fits-all solution.

  18. Aphrophile,
    While I do agree that the development community should be pushing more in this direction, my feeling – which means the forthcoming is entirely speculative – is not that they are the ones holding this back. I think the main resistance comes from a lack of understanding by voters, both in poor and in rich countries.
    I am from Brazil, which is one of the pioneers in this kind of program. It has been a tremendous success. Still, most of the people I talk to in the middle class see it as a “giving the fish not teaching how to fish” vote-buying scheme. People suffer from “do-something” bias. If they don’t see somebody working really hard to give a big push, they think officials are being just lazy.

    I think you underestimate the benefits. It is a lot more than 40%. Most social programs are based on the – to me very clear – assumption that money has a decreasing marginal utility. This means that even if the effect you found was zero, the program would have been a huge success. How much of a success would depend on the difference between the marginal utility for money for the funders and the beneficaries. If this money comes from the average OCDE citizen (I don’t think it should come from Ugandan elites), I think estimating that a poor Ugandan would get at least ten times more utility is not very far off. This would mean that the benefits would already be 1000% the costs. If you consider that, on top of that, amazingly, people also become a whopping 40% more productive, we get a whopping 1300% net benefits. Now this is a good return on investment.

    Am I getting this wrong?

    PS: I really should read the paper before double-dipping in the comments

  19. There’s a new paper that suggests that sizable regular payments could increase investment more, because it reduces risk.

    This is plausible, but I’m not convinced. It probably would not apply to small sums. (The behavioral econ literature tells us that people spend big chunks of money in a more forward-looking way than small chunks of money.) Also, they assume that investing in entrepreneurship is riskier, but I don’t know if that’s the case (it’s not in Uganda). Finally, their data is non-experimental.

    The economists behind Give Directly are testing this exact proposition right now in Kenya, so we should have RCT evidence soon.

  20. Sorry, I had not understood what the consumption variable was measuring exactly.
    Its a good paper, much food for thought. Certainly not a panacea as you say. Recipients are no more likely to employ others and most don’t switch to their new vocation full time. I don’t see many of these enterprises ever becoming professionally managed firms.
    You seem to use the terms transfer and grant interchangeably. I think of cash transfers as small regular payments (motivated in terms of social protection), not the one-off large grants we’re talking about here. I’m not aware of much systematic evidence comparing the economic returns of these two types of intervention. Just curious: if you had a pot of money to give away would you go for the lump sum option or small regular payments?

  21. @Mordatar

    “But this works, we know that. Why isn’t all aid, or at least the vast majority, given in the form of cash transfers?”

    I think the key question you have to ask is, Who would be the people to push for a change in policy toward more cash transfers? The people who know and care most about these issues are themselves “development professionals” and government officials in developing countries, both of whom live quite comfortably under the status quo. Saying that the billions of dollars of development assistance should just go directly to poor people undercuts the programming that is their livelihood.

    Often when I make this point people say I’m accusing development workers of acting in bad faith–certainly all the development workers they know are genuinely more committed to poverty reduction than to their own careerism–but I don’t intend to impugn the motives of any individual. It’s not a question of individual character, but rather of institutional incentives. Who within the aid apparatus stands to benefit from making the delivery of aid more effective? What does the typical worker in (say) a World Bank country office stand to gain by rocking the boat in this way?

  22. Peter, you make a good point. We should clarify this in the paper.

    We don’t have a true or even close to full measure of consumption, but only measure short term spending on about 60 goods (anything more was unaffordable). So it’s merely a proxy and we should look at the % change not the absolute change there. It doesn’t even include durable assets, an important form of consumption, which we measure differently and separately. It too goes up a lot. These were done mainly to validate the increase in cash earnings.

    Hence, the 40-50% increase in earnings is probably reflected in an increase in permanent income/consumption, though some of those earnings are saved or reinvested in the business.

    Your larger point is that these are small absolute increases is still correct, though. These are gains of a few dollars a week. Proportionally it’s large, and can make a big difference to their lives. But it’s not a panacea. As a return on the investment (the grant), however, 40% is pretty good for an aid intervention. Especially because it seems to set people on a growth path.

  23. The percentage impacts look very impressive but the absolute gains are really quite tiny. If I’m not mistaken, consumption increases by around 10 cents a day. This can certainly help to reduce poverty but the link you draw to economic growth is tenuous. This sort of ‘cottage industry’ is certainly not what the government has in mind when it talks about structural transformation, and your line of argument wouldn’t get you very far in selling cash transfers to the Ugandan ministry of finance (I’ve tried). I doubt you would see these impacts elsewhere, even in central Uganda say, where the rural non-farm economy is already more developed.

  24. Excellent! Thank you so much for sharing this. Great to see a program that ticks so many of the development boxes (gender, social protection, employment, community driven development, youth) and is innovative.

  25. Hi Chris,

    Nice paper. I didn’t see any reference to the Namibia study by Suzuki (2011), the findings of which would further support your case.

    There is also the case, in the current deflationary environments, for governments to print money and spend it directly into the economy, either via infrastructure projects or, as you note, simple cash grants to entrepreneurs. This will at least stimulate the real, productive economy and not the finance fueled speculative one.



  26. I think it is amazing the differences between studies on cash transfers and all other studies in development (or economics, for that matter). In a normal study, an academic finds a relationship – say, between free trade and growth. The relationship is weak to begin with, but that does not stop people from recommending free trade as the most important bestest policy. Then someone does another study, and he finds things are not like that, correlation-does-not-imply-causation, etc. And then he recommends industrial policy as the great thing.
    Then we have the literature on cash transfers. There have been all sorts of studies, with conditions, without conditions, in latin america, in asia, in africa. Randomized, cotrolled, large-scale studies. And it works. For a great number of policy goals. It gives people access to food, without hurting local markets. It actually helps local markets. It improves people’s health (as a recent lancet article shows), it increases productivity, as your study shows. Yet we still see some people say “we should not treat this as a panacea, we should always combine cash transfer with (…)” – and then they mention some unproven initiative . Well, nothing is a panacea. But this works, we know that. Why isn’t all aid, or at least the vast majority, given in the form of cash transfers?

    Congratulations on your work. Looking forward to reading it.

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