Cash Transfers, Behavioral Changes, and Cognitive Development in Early Childhood : Evidence from a Randomized Experiment

Abstract

In many developing countries, cash transfer programs are an important component of the social safety net. A large number of studies have assessed the impact of such programs on consumption poverty, health status, nutrition, and education. Much less is known about the extent, if any, to which cash transfers also improve the cognitive and socio-emotional development of young children. This is important because a variety of theories of skill formation suggest that investments in schooling and other dimensions of human capital will have lower returns if children do not have adequate levels of cognitive and social skills at early ages. This paper analyzes the impact of a randomized cash transfer program on cognitive development in early childhood in rural Nicaragua. It shows that the program had significant effects on cognitive outcomes, especially language. Impacts are larger for older pre-school aged children, who are also more likely to be delayed. The program increased intake of nutrient-rich foods, early stimulation, and use of preventive health care—all of which have been identified as risk factors for development in early childhood. Households increased expenditures on these inputs more than can be accounted for by the increases in cash income only, suggesting that the program changed parents’ behavior. The findings suggest that gains in early childhood development outcomes should be taken into account when assessing the benefits of cash transfer programs in developing countries. More broadly, the paper illustrates that gains in early childhood development can result from interventions that facilitate investments made by parents to reduce risk factors for cognitive development.