Maximizing the Economic Impact of Cash Transfers: why Complementary Investment Matters

Abstract

Providing safety nets to the poor is part of the agenda of most developingcountries. When poverty incidence is high, providing a signiÿcant share ofthe population with social transfers implies substantial mobilization ofresources for the government. It also implies that a large injection of fundswill °ow into the economy and reach a population that will mostly consumethe transfers they receive. This increase in households’ consumption willincrease demand for all sorts of goods and services and will have varyingeconomic impacts depending on whether it reaches markets that havethe elasticity needed to respond e˛ciently and rapidly enoughto prevent prices from increasing.