Patrick Premand

Demand versus returns ? pro-poor targeting of business grants and vocational skills training

Interventions aimed at increasing the income generating capacity of the poor, such as vocational training, micro-finance or business grants, are widespread in the developing world. How to target such interventions is an open question. Many programs are self-targeted, but if perceived returns differ from actual returns, those self-selecting to participate may not be those for whom the program is the most effective. The authors analyze an unusual experiment with very high take-up of business grants and vocational skills training, randomly assigned among nearly all households in selected poor rural communities in Nicaragua. On average, the interventions resulted in increased participation in non-agricultural employment and higher income from related activities. The paper investigates whether targeting could have resulted in higher returns by analyzing heterogeneity in impacts by stated baseline demand, prior participation in non-agricultural activities, and a wide range of complementary asset endowments. The results reveal little heterogeneity along observed baseline characteristics. However, the poorest households are more likely to enter and have higher profits in non-agricultural self-employment, while less poor households assigned to the training have higher non-agricultural wages. This heterogeneity appears related to unobserved characteristics that are not revealed by stated baseline demand, and more difficult to target. In this context, self-targeting may reduce the poverty-reduction potential of income generating interventions, possibly because low aspirations limit the poors ex-ante demand for productive interventions while the interventions have the potential to increase those aspirations. Overall, targeting productive interventions to poor households would not have come at the cost of reducing their effectiveness. By contrast, self-targeting would have limited poverty reduction by excluding the poorest.

Poor households'productive investments of cash transfers: quasi-experimental evidence from Niger

Cash transfer programs have spread rapidly as an instrument to raise household consumption and reduce poverty. Questions remain about the sustainability of cash transfer impacts in low-income settings such as Sub-Saharan Africa and, in particular, on whether cash transfers can foster productive investments in addition to raising immediate consumption among the very poor. This paper presents evidence that a cash transfer project in rural Niger induced investments in assets and productive activities that were sustained among the very poor 18 months after project completion. Results show lasting increases in livestock assets and participation in saving groups (tontines). Cash transfers also contributed to improved agricultural productivity, but no effects in terms of diversification of other household enterprises are found. Productive asset gains are, notably, largest among the poorest of the poor, suggesting that small regular cash transfers combined with enhanced saving mechanisms can relax constraints to asset accumulation among the extreme poor.