Blattman, Christopher, Nathan Fiala, and Sebastian Martinez “Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda”
Abstract: How to stimulate employment and the shift from agriculture to industry in developing countries, with their young, poor, and underemployed populations? A widespread view is the poor have high returns to investment but are credit constrained. If so, infusions of capital should expand occupational choice, self-employment, and earnings. Existing evidence from established entrepreneurs shows that grants lead to business growth on the intrinsic margin. Little of this evidence, however, speaks to the young and unemployed, and how to grow employment on the extensive margin — especially transitions from agriculture to cottage industry. We study a large, randomized, relatively unconditional cash transfer program in Uganda, one designed to stimulate such structural change. We follow thousands of young adults two and four years after receiving grants equal to annual incomes. Most start new skilled trades. Labor supply increases 17%. Earnings rise nearly 50%, especially women’s. Patterns of treatment heterogeneity are consistent with credit constraints being relieved. These constraints appear less binding on men, as male controls catch up over time. Female controls do not, partly due to greater capital constraints. Finally, we go beyond economic returns and look for social externalities. Poor, unemployed men are commonly associated with social dislocation and unrest, and governments routinely justify employment programs on reducing such risks. Despite huge economic effects, we see little impact on cohesion, aggression, and collective action (Peaceful or violent). This challenges a body of theory and rationale for employment programs, but suggest the impacts on poverty and structural change alone justify public investment.
Blattman, Christopher, Nathan Fiala, and Sebastian Martinez “Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda,” the Social Science Research Network, May 20, 2013