We can use innovative data and methods to explore how human development policies effect economic growth. Juan M. Villa finds significant change from conditional cash transfer programmes on economic growth in Colombia using satellite data.

The study of planned development has largely been shaped by the division between a focus on economic growth on one hand and on human development on the other.  This division has arguably influenced and continues to influence approaches and priorities in international development. To illustrate, if one analyses the emphasis of the World Bank and the International Monetary Fund, most of the policy recommendations are aimed at boosting economic growth as a means of reaching prosperity. The emphasis of the United Nations Development Programme in contrast, tends to be more focused on human development issues, such as literacy, life expectation and some others reflected on the Millennium Development Goals. However, the divergences of these two perspectives of development can be potentially bridged by generating evidence on the effects of human development policies on economic growth. In this regard, recent research, which I conducted during a PhD internship at UNU-WIDER in Helsinki, found that certain policies seeking to enhance human development can also boost economic growth. One such policy is the conditional cash transfer programme (CCT).

CCTs have been part of a growing trend in antipoverty policy in Latin America since the mid-1990s. They deliver income subsidies in cash to households identified as poor and vulnerable, upon complying with two main conditions: school attendance and regular health check-ups of participating children. The objective of the CCTs is focused on the future welfare of current children. It is assumed that their parents will keep them at school and that the higher human capital that results will prevent children becoming poor when adults. One particular significant dimension of this antipoverty programme is the effect that the cash transfers generate not at the household level, but rather in the villages where they are delivered. Adult household members comply with the conditions of the programme but, at the same time, they invest the transfers in their own business, to the extent that they are able to spur local economic activity. Beyond the beneficiaries, non-beneficiaries also obtain the benefits from the CCTs. Prof. Armando Barrientos, from Brooks World Poverty Institute, refers to this phenomenon as a ‘local economy effect’.

Ideally, the impact assessment of antipoverty transfers on growth would require reliable information on local gross domestic product. Most areas where CCTs operate are often very poor with limited information on community-level economic activity. I tackle this limitation by employing luminosity data captured at night by satellites orbiting the earth, which record night lights since 1992. The US-based National Oceanic and Atmospheric Administration stores this information and makes it available on its webpage. The iconic image of these data is the striking Korean peninsula, where the north stands out for its darkness while the south for its brightness. Several authors have validated the use of these data as a good proxy for economic growth. I employ this proxy for economic growth and estimate the effects of the Colombian CCT known as Familias en Accion (Families in Action, in English) programme. Using these data I was able to attribute a positive effect of the CCTs on growth and per capita growth rates of the programme between 2000 and 2004.

This study demonstrates that the objectives of human development policies can be twofold. On one hand, they can contribute to higher human capital accumulation of children. On the other, they can also generate economic growth in the medium and long-run. More research is needed in this field, especially in other types of antipoverty programmes.

Reference:

Villa, J.M., 2014. Social transfers and growth: The missing evidence from luminosity data (Working Paper No. 2014/090), UNU-WIDER Working Paper Series. United Nations University – World Institute for Development Economics Research.

Available at: http://www.wider.unu.edu/publications/working-papers/2014/en_GB/wp2014-090/

Juan M. Villa is an economist and currently a third year PhD student at the Brooks World Poverty Institute.