The Impact of Conditional Cash Transfers in Nicaragua on Consumption, Productive Investments, and Labor Allocation

This paper examines the effects of a conditional cash transfer program in Nicaragua on a wide range of outcomes related to productive investments. This is done using a randomized community level evaluation in which households were interviewed both before and after the program began in both randomly selected treatment and control areas. While limited information was collected on productive activities, the strength of the evaluation design permits a rigorous assessment of many possible productive investment behaviors. Overall, there is evidence of small increases in investments in economically productive activities and negative effects on labor supply for beneficiary households. This is unsurprising, given the findings from many studies that indicate that the bulk of the transfers are directed to current consumption, consistent with most programs secondary objective of increasing food expenditures. In contrast to the gains made in human capital development of children (reported elsewhere), the potential for long term increases in consumption as a result of increased investment, while positive, may be limited.