Changing the ability of the poor to generate income : Mexico's Conditional Cash Transfer program Oportunidades

Abstract

Conditional Cash Transfer (CCT) programs have been adopted in many developing countries, particularly in Latin America, as the core strategy for poverty reduction. These programs provide immediate economic support to poor populations conditional on specific actions such as sending children to school or receiving healthcare. The main rationale behind this approach is that, once human capital accumulates, the poor will take full advantage of labor market opportunities and overcome poverty. Some scholars argue that, despite the remarkable positive impacts of these programs on human capital formation, the low growth rate of employment prevailing in most Latin American countries pose difficult challenges for achieving their ultimate goal of poverty reduction. Nevertheless, the generation of employment opportunities could be a direct consequence of these programs. I analyze this circumstance by evaluating the likelihood of households to invest cash transfers in business creation. Using longitudinal data from the Mexican Family Life Survey (MxFLS), I assess the impact of the Mexican CCT program, Oportunidades, on the creation of businesses. For this purpose, I implement the difference-in-difference (DD) method and, to account for the non-experimental nature of the study, I use Rosenbaum and Rubin's propensity score matching method. Finally, I identify some of the characteristics of beneficiary households that are more likely to invest using a difference-in-difference-in-difference (DDD) estimator. The results indicate that beneficiary households in rural and urban areas are more likely to create businesses than non-beneficiary households. This may be a relevant finding for the design of this type of policy instruments, especially if the promotion of income-generating activities can be achieved as an alternate goal. Cash-transfer investments, coupled with additional mechanisms of support such as entrepreneurial development programs, could contribute not only to short-term poverty alleviation, but also to a long-term, sustainable solution to poverty.