For today’s column, I write about some exciting research on unconditional cash transfers as a tool of fighting global poverty. A well-designed randomized experiment in Northern Uganda shows that recipients of one-off lump-sum cash transfers earn substantially higher annual incomes two and four years after the intervention, since a large share of the lump sum seems to have been invested in the acquisition of skills and capital equipment. Due to higher earnings power, labor supply increases and recipients of the money seem to be using it to effectively overcome underemployment traps.
That’s great news. Since I’m also interested in cash transfers as domestic anti-poverty policy, it’s worth noting that it would probably be a mistake to read these results as directly relevant to fighting poverty in rich countries. The actual life circumstances of families residing in the U.S. and living below the Federal Poverty Line and those facing people living on $1 a day in rural Uganda don’t have a great deal in common. In domestic terms, I think unconditional cash transfers look like a cost-effective way of increasing human welfare. But the really exciting thing about this Uganda result is that it appears to indicate that cash transfers would actually spark economic growth, by creating a more skilled workforce and a more capital-intensive economy.