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Pensions, Poverty and Household Investments in Bolivia

Pensions, Poverty and Household Investments in Bolivia

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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