How No-Strings Aid Affects the Poor

GiveDirectly is an unusual charity. Donors give money. GiveDirectly, well, gives it directly to the poor. It does not tell them how to spend it or when to spend it. And it does not give money to a specific group, like mothers or farmers or the elderly.

Development economists think that such so-called “unconditional cash transfers” might be a powerful and in some cases underutilized tool to help reduce poverty. That is partly because they trust the recipients of the money to use it in the way they deem best. Another aid group might give them specific goods or services â€" shoes, medical care or education, for instance. But maybe what they really need are sewing machine to help their small-scale businesses get off the ground. Or maybe a recipient would really like to attend a family member’s funeral or pay for a wedding. Unconditional cash transfers let her do that and trust that she is doing what is best for her.

But new evidence from a randomized control trial that GiveDirectly carried out in western Kenya shows that recipients are not just spending their transfers, providing a one-time boost to their consumption without affecting their overall well-being. Instead, the approach seems to have a powerful impact on their quality of life.

In the trial, GiveDirectly sent certain poor rural households money through M-Pesa, the Kenyan mobile money system. There was variation in whether it gave the money to the household’s wife or husband, whether it went out in a lump sum or installments and in the size of the transfer. (Read about how GiveDirectly conducted the study here.) The study’s authors â€" Johannes Haushofer of the Jameel Poverty Action Lab at the Massachusetts Institute of Technology and Jeremy Shapiro, one of the founders of GiveDirectly â€" then surveyed the recipients and compared them with households that did not receive any transfers.

Here are some of the headline results:

• The value of the recipients’ “assets” â€" like farm animals and metal roofs â€" increased  58 percent.
• The recipients were 23 percentage points more likely to have a metal roof rather than a thatch roof, and the value of their livestock increased by half.
• The transfer reduced recipients’ hunger, increasing food consumption 20 percent and reducing the likelihood of a respondent going hungry the week before by 30 percent.
• The recipients invested some of their money, increasing their revenue from animal husbandry and other small-scale enterprises.
• The recipients were happier, more satisfied and felt less stress, with big transfers even reducing the recipients’ levels of cortisol, a stress hormone.
• But not all poverty indicators improved, with little evidence of an effect on health or education.

The study does not look at the efficacy of cash transfers in relation to other interventions, like giving cash transfers for a specific business purpose or making in-kind donations. But it does look at dozens of other variables, like the likelihood of having a child vaccinated and the value of a household’s birds. There was more on GiveDirectly in a recent article from The New York Times Magazine. An earlier Economix post also looked at unconditional transfers.