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Pensions, Poverty and Household Investments in Bolivia

Pensions, Poverty and Household Investments in Bolivia. Sebastian Martinez Human Development Network The World Bank Perspectives on Impact Evaluation Conference Cario, Egypt April 2009. Cash Transfers and Poverty. Transfers have been shown to:

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Pensions, Poverty and Household Investments in Bolivia

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  1. Pensions, Poverty and Household Investments in Bolivia Sebastian Martinez Human Development Network The World Bank Perspectives on Impact Evaluation Conference Cario, Egypt April 2009

  2. Cash Transfers and Poverty • Transfers have been shown to: • Increase current consumption (Case and Deaton, 1998; Hoddinott et al, 2000;) • Improve human capital: health and education (Carvalho, 2001; Duflo, 2003; Gertler, 2004; Schultz, 2004) • Cash transfers may also help relax liquidity constraints (Sadoulet, de Janvry and Davis, 2001):  Investments in under-capitalized assets and opportunities  Multiplier effects • More income/consumption  Reduce poverty

  3. Impact of Cash Transfer in Bolivia • Pension transfer to large group of poor households • Effect on household consumption & investment • Quasi-experimental evaluation: • Pre- and post- data from policy shifts: available 1999-2002, pensions paid as of 2001 • Known eligibility criteria: 65+ • Uses existing nationally representative household data • External validity of results • Cheap way to do an impact evaluation but…. • Low power relative to primary data collection on target population

  4. Pensions to Poor Rural Households • Increased food consumption > transfer amount • Increased home production of meats & vegetables • Evidence of increased investment • Increased expenditures on farm inputs • Increased use of land • Increased animal ownership • Results consistent with presence of liquidity constraints

  5. Presentation Outline • Country Context • The Intervention • Data Sources • Identification & Estimation • Results • Conclusions

  6. Country Context - Bolivia Source: 2002 World Development Indicators; South America: Peru, Ecuador, Colombia, Venezuela,Chile, Argentina, Uruguay, Paraguay, Brazil; poverty line for average of available data 1990-2003: excludes Argentina, Uruguay and Venezuela (missing data)

  7. Rural Bolivians Are.. • Poor • Less than $1 USD per day mean consumption per capita • 35% of HHs with electricity • 72% of HHs with dirt floors • Have little access to formal credit • Less than 2% have debt from formal lending institution ( mortgage, credit cards, micro-credit) • But they own land • Agrarian reform following 1952 revolution • 83% of HHs own land • Median of 1 hectare under cultivation • Average of 2.3 hectares under cultivation Source: MECOVI 1999-2002

  8. Presentation Outline • Country Context • The Intervention • Data Sources • Identification & Estimation • Results • Conclusions

  9. Intervention - BONOSOL • Established by 1996 pension reform to: • Provide pension coverage for majority of seniors outside the old pension system • Distribute proceeds from partial privatization of state owned companies (1.7 billion USD) • Reduce poverty • Annuity of $248 to ALL Bolivians 65 and older • 40% of annual minimum salary • 85% of per-capita income for extreme poor

  10. BONOSOL History

  11. $120 USD • Equivalent to: • 33% of annual rural per capita consumption • 47% of rural per capita food consumption • 48 Chickens • 17 sheep • 7 pigs • 5 Llamas • 1 Cow/Oxen

  12. Presentation Outline • Country Context • The Intervention • Data Sources • Identification & Estimation • Results • Conclusions

  13. Data: MECOVI

  14. Presentation Outline • Country Context • The Intervention • Data Sources • Identification & Estimation • Results • Conclusions

  15. Identification • Regression Discontinuity: • compare consumption of eligible & ineligible HHs • above and below 65 year eligibility threshold • in pre- and post-treatment periods • Estimate effect of BONOSOL on consumption: • Report robust SE, clustered at primary sampling unit

  16. Covariates • Include controls for: • Education of oldest member • Gender of oldest member • Ethnicity (language) of oldest member • Household Size • Age/gender composition • Rural • Regional fixed effects (department)  Results robust to exclusion of covariates

  17. Analysis Sample • Start with 16,537 HHs • Drop households with: • Oldest household member < 45 years or >80 years  4,032 Households • Top and bottom 1% of consumption outliers • Exclude households with more than one beneficiary (for now)  0.46% of sample • Final analysis sample of 11,614 households

  18. Presentation Outline • Country Context • The Intervention • Data Sources • Identification & Estimation • Results • Conclusions

  19. Presentation Outline • Country Context • The Intervention • Data Sources • Identification & Estimation • Results • Conclusions

  20. Conclusion • BONOSOL Cash Transfer: • Evidence of multipliers: Increase in food consumption > value of transfer • Effect driven by poor rural & landed households : • Increase home produced food consumption • Evidence of investments in farm inputs & animal stock • Consistent with story that HHs use transfer to overcome liquidity constraints on productive activities, boosting consumption through investments

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