Cash Transfers Boost the Local Economy in Cambodia

Cambodia has social protection at the centre of poverty reduction strategy. The government has tested several designs of social protection instruments for future scale-up. What components or types of social protection programmes most effectively reduce poverty and vulnerability in the country’s context? It is often an important question at the pilot phase to assess impacts on household’s consumption or income. But what about impacts on a local economy?

Levy and Robinson conducted empirical analysis to answer this question. Their findings imply that an effective combination of cash transfers and other public interventions boost more efficiently than cash transfers alone. The followings are some more details.

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Recent studies on social protection commonly assess economic impact of social transfers at the level of households, but few studies analyse impact on local economy. In order to fill a gap, their paper attempts to analyse the potential economic impact that social protection policies might have on an economy. Taking a case study of Cambodia and employing a commutable general equilibrium (CGE) model, it simulates conditional cash transfers (CCT) and unconditional cash transfers (UCT). The model allows analysis of social policy impacts on prices, production, employment, wages and trade in an ex-ante context.

Result shows:

• Cash transfers seem to promote recipient households’ investment in productive assets, which  will potentially reduce their vulnerability in the long run.
• UCTs alone could fail to reduce poverty more than cash transfers themselves.
• CCTs beneft substantially rural labour markets and wages although these impacts are relatively lower than existing empirical estimates. The productivity effect potentially boosts supply and mitigate the risk of price increases in domestic markets and increased trade.
• Combined with productive public investment, cash transfers are less likely to increase domestic market prices.
• Domestic supply is not elastic enough to respond to an increased demand with cash transfers. It theoretically leads to a price increase in goods and services in a local economy. However, productivity improvement from health and education components of CCTs likely eases price effects of cash transfers.
• Combining social protection and rural development policies potentially generate more poverty reduction effect than cash transfers alone.

Reference

Levy, S. and Robinson, S. (2014) Can Cash Transfers Promote the Local Economy? A Case Study for Cambodia.

Author: Ippei Tsuruga Ippei Tsuruga is the Editor-in-Chief and the founder of The Povertist. He has extensive experience and knowledge in poverty and social protection in Asia and Africa.