savings and subsidies, separately and together...

Savings and Subsidies, Separately and Together:

Decomposing Effects of a Bundled Anti-Poverty Program

Michael Carter, UC Davis Rachid Laajaj, Universidad de los Andes

Dean Yang, University of Michigan

Millennium Villages Project

•  Many anti-poverty programs are “bundled”, in that they consist of multiple components

•  Millennium Villages implements interventions in food, education, environment, health, etc.

•  Programs to help the “ultrapoor” (Karlan et al 2015) –  Resource transfers, skills training, savings, health, etc.

•  But how do the components interact with one another? Are all necessary? Do components complement one another?

•  We investigate this in Manica, Mozambique, looking at the interplay between two important types of programs: –  Agricultural input subsidies –  Formal savings

Fighting poverty with multiple interventions

Input subsidy programs (ISPs)

•  Perhaps the most significant recent development in agricultural policy in Sub-Saharan Africa

•  Large-scale subsidization of modern inputs (fertilizer, improved seeds)

4

•  Across 10 countries implementing ISPs, 2011 expenditures totaled $1.05 billion, or 28.6% of public agricultural spending

•  Substantial budgetary support by World Bank, other donors –  Represents an about-face for many development agencies,

which for decades opposed subsidies

8,4% 10,4%

18,1%

25,7% 26,0% 26,1%

29,9%

39,9%

46,0%

58,3%

0%

10%

20%

30%

40%

50%

60%

70%

Burkina Faso Ethiopia Mali Kenya Nigeria Senegal Ghana Zambia Tanzania Malawi

Expe

nditu

res a

s % of p

ublic agricultural spe

nding

ISP expenditures in 10 SSA countries, 2011

5 Source: Jayne and Rashid (2013)

Savings

•  More recently, there has been increased interest in savings interventions in developing countries –  Provide formal savings facilities to the poor, to

complement informal savings –  Savings match programs have been attempted, mostly in

developed countries

•  Experimental studies of savings interventions have not examined their interaction with other programs

6

•  Consider two interventions whose impacts when offered separately are a and b, and whose impact when offered together is a + b + c –  Complementarity represented by c

•  Complementary: impact of the joint intervention is greater than the sum of impacts when offered separately

a + b + c > a + b (c > 0)

•  Additive: joint impact is equal to the sum of the separate impacts

a + b + c = a + b (c = 0)

•  Substitutes: joint impact is lower than the sum of the separate impacts

a + b + c < a + b (c < 0)

Testing for complementarity

•  Provincial Government of Manica

•  Banco Oportunidade de Mocambique (BOM)

•  Food and Agriculture Organization (FAO)

•  European Commission (EC)

•  International Fertilizer Development Corporation

Key collaborators

8

The study

•  ~1,500 rural maize farmers in 94 localities in Manica province, Mozambique –  A locality is a grouping of nearby

villages

•  Study participants are “progressive” farmers willing to use modern agricultural inputs –  Lists generated by government

agricultural extension workers in each village

9

Randomization of treatments

•  Each locality randomly assigned to one of three savings treatment groups (control, basic savings, matched savings) –  After stratification into groups of 3 nearby localities

•  Subsidy vouchers assigned by random lottery at participant level within localities

10

No savings program

(32 locali;es)

Basic savings program

(30 locali;es)

Matched savings program

(32 locali;es)

Subsidy No subsidy

prob. 1/2

prob. 1/3

prob. 1/3 prob. 1/3

prob. 1/2 prob. 1/2 prob. 1/2 prob. 1/2

prob. 1/2

Subsidy No subsidy Subsidy No subsidy

Subsidy vouchers

•  50% of study participants within each village randomly assigned to voucher receipt

•  Provides 73% discount on MZN 3,160 (~US$113) package of fertilizer, improved seeds

11

•  Voucher redemption rates: –  Lottery winners: 48.3% –  Lottery losers: 12.1%

•  Carter, Laajaj, and Yang (2014) examines impact of subsidies alone in no-savings localities –  Positive impacts on fertilizer use, output, consumption that

persist up to two years after the subsidy –  Learning appears to be a channel, leading to persistence of

impact

BOM’s “Bancomovil”

•  Savings accounts at Banco Oportunidade de Mocambique (BOM) •  Access via 2 branches and scheduled visits by “Bancomovil”

units 12

Sussundenga: -‐  Bancomovil (BOM) -‐  Barclays Bank

Manica: -‐  Bancomovil (BOM) -‐  Barclays Bank -‐  BOM -‐  BIM -‐  BCI

Catandica: -‐  Bancomovil (BOM) -‐  Caixa Financeira -‐  BIM

Chimoio: -‐  Tchuma -‐  Standard Bank -‐  Barclays Bank -‐  BOM -‐  BIM -‐  BCI -‐  Socremo -‐  Banco Terra

Study localities, by savings treatment

Savings treatments

•  Both savings treatments began with village-level information sessions on formal savings –  Emphasized use of savings for

both investment and self-insurance

•  Over next two months, one representative per group of 5 study participants receives follow-up training in town, and asked to convey information to group-mates

•  Participants also encouraged to open accounts at BOM, either at Bancomovil or fixed branch locations

14

Educational material on savings and fertilizer

15

Savings game

Basic vs. matched savings

•  Accounts offered in “basic savings” treatment were standard savings accounts –  Raises 2013 account ownership at BOM by 16 pp

•  In “matched savings” treatment: –  Match is 50% of minimum balance over match period –  Matching funds capped at MZN 1500 (~$54) –  Match period: August 1 – October 31 –  Designed with agricultural cycle in mind

•  Match period ends just before next planting season •  If save full amount (MZN 3000), savings + match can

purchase input package sufficient for 3/4 hectare plot –  Two years of match promised: 2011 and 2012 –  Raises 2013 account ownership at BOM by 22 pp

17

Surveys

•  First survey administered Apr-May 2011 •  Three follow up surveys, in September of 2011, 2012, and 2013

18

Impact on fertilizer use (2012-13)

53,9%

7,4%

60,5% 59,6%

46,5%

0%

10%

20%

30%

40%

50%

60%

70%

Voucher Basic savings Basic savings + voucher

Matched savings

Matched savings + voucher

% im

pact on fer]lizer use

Significance levels: 1%***, 5%**, and 10%*. Control group has fer]lizer use of MZN 1,242.

**

** **

Impact on formal savings (2012-13)

712

1.032

2.020

1.639

1.948

0

500

1.000

1.500

2.000

2.500


Matched savings


Impact on form

al sa

vings (MZN

)

*

***

*** ***

Significance levels: 1%***, 5%**, and 10%*. Control group has formal savings of MZN 1,439.

753

874

1523

944

1450

0

500

1.000

1.500

2.000

2.500


Matched savings


Impact on form

al sa

vings (MZN

)

BOM Other

•  The majority of savings increases are not at BOM, but at other banks (BIM in particular)

Impact on formal savings: BOM vs. other

•  Summary measure of well-being: daily consumption per capita, average across 2012-13

•  Total value of consumption in household, divided by number of household members, converted to daily frequency

•  Consumption items reported in survey, converted to money values –  Detailed food items –  Personal items –  Transport –  Utilities –  Household items –  Health –  Education –  Personal expenditures –  Taxes –  Other

Daily consumption per capita

8,40%

9,10%

3,70%

9,90%

8,80%

0%

2%

4%

6%

8%

10%

12%


Matched savings Matched savings + voucher

% im

pact on consum

p;on

**

**

** **

Impact of treatments on consumption

Significance levels: 1%***, 5%**, and 10%*. Per capita daily consump]on in control group is MZN 72.

8,40%

9,10%

3,70%

9,90%

8,80%

0%

2%

4%

6%

8%

10%

12%



% im

pact on consum

p;on

**

**

** **

**



8,40%

9,10%

3,70%

9,90%

8,80%

0%

2%

4%

6%

8%

10%

12%



% im

pact on consum

p;on

**

**

**


**

•  Cannot reject that all treatment effects are equal •  For no pair of treatment effects can we reject equality


•  It appears that subsidies and savings are substitutes, rather than complements

… at least from the standpoint of raising consumption levels

•  Offering subsidy alone has as much impact as offering savings alone

•  And offering both has no additional impact

•  Why might this be the case?

Substitutes, not complements

•  Savings can serve two roles –  Investment: funds accumulated and then used

productively –  Risk-management: holding buffer stocks to cope with

shocks (self-insurance)

•  Use of savings may depend on whether household receives subsidy or not

•  When not receiving subsidy, households use savings for investment as well as risk-management

•  On the other hand, subsidy recipients may use savings for risk-management alone, and not for additional investment

The dual role of savings

•  This seems to be what is going on

•  Consumption variance is lower in savings treatment groups

•  Savings treatment groups appear better at coping with shocks

Additional evidence

Significance levels: 1%***, 5%**, and 10%*. Consump]on variance in control group is 0.45.

0,092

0,050

0,027

0,036

-‐0,006

-‐0,02

0

0,02

0,04

0,06

0,08

0,1



Impa

ct on stan

dard devia;o

n of log consum

p;on

Impact of treatments on consumption variance

***

*

0,092

0,050

0,027

0,036

-‐0,006

-‐0,02

0

0,02

0,04

0,06

0,08

0,1



Impa

ct on stan

dard devia;o

n of log consum

p;on

Impact of treatments on consumption variance

***

*

Significance levels: 1%***, 5%**, and 10%*. Consump]on variance in control group is 0.45.

PDFs of log consumption

•  Savings also help households cope with negative agricultural shocks

•  In each survey, respondents report whether the last agricultural season was a “bad year”

•  Subsidy-only treatment makes household consumption more sensitive to bad years

•  By contrast, in savings treatments, consumption does not fall in bad years

Savings helps cope with bad shocks

•  From standpoint of raising consumption, subsidies and savings appear to be substitutes, rather than complements –  Either treatment on its own has similar positive impact, but

providing both treatments has no additional impact

•  Savings are used for either investment or risk-management –  Households receiving both subsidies and savings treatments

seem to focus on risk management –  Households receiving only savings treatments may be using

savings for both purposes

•  Underlines how financial services can help households offset increased risk from new economic opportunities

•  Complementarities between development programs may show up in risk management rather than in higher mean returns

In sum

0,084

0,091

0,037

0,099

0,088

0

0,02

0,04

0,06

0,08

0,1

0,12



Impa

ct on inde

x of con

sump;

on and

assets

**

**

**

Heterogeneous effect of subsidies

**

•  Within-village impact of subsidies varies with exposure to savings intervention

Impact of subsidies in no-‐savings villages

Impact of subsidy in basic savings villages

Impact of subsidy in

matched savings villages

•  Estimating impacts of subsidies: –  Estimated impact of subsidies, within locality, varies according

to presence of savings program in locality •  In no-savings villages, subsidy impacts are large •  But in savings villages, subsidy impacts disappear

–  Because savings is a substitute for subsidies, from the standpoint of consumption/asset maximization

–  May help explain differences in estimated subsidy impacts across studies (e.g., Duflo et al 2011, Carter et al 2014, Harou et al 2014)

•  Benefit-cost analyses: –  Basic savings does just as well as relatively costly subsidy and

matched savings programs at raising consumption and assets •  Case for subsidy and matched savings programs – on top

of basic savings – hinges on valuation of risk-reduction benefits

Other takeaways

savings and subsidies, separately and together...

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