Paraguay's Tekopora cash transfer program and poverty reduction

Economic Development

Economic Impacts of Tekopora - Theory

The Tekopora program was launched in 2005 to provide cash payments, as a means of help low income Paraguayans escape poverty. Basic economic analysis suggests the following outcome expectations are reasonable, in the areas of per capita income, consumption, poverty reduction and school attendance. It should be expected that per capita income and consumption would both increase. The reason for this is simple. As a cash transfer, Tekopora is just putting money into the hands of the recipients, which inherently increases their ability to spend. That alone should see an increase in per capita consumption.

Flowing from that, Tekopora should also result in an increase in overall per capita income in the country. However, that effect should be much lower. The reasons is simple -- Tekopora is not a big program. The program initially served 4500 households, with payments ranging between $18-36 depending on the number of children in the family. Thus, Tekopora began life as a program around $1.5 million per year. While the program has expanded, this number is nowhere near big enough to significantly impact the per capita income of Paraguay. The GDP in 2005 was $30.9 billion, or $4,900 per capita (Library of Congress, 2005). Adding $1.5 million onto that would add around $5 to the country's per capita earnings. Thus, the impact is better to the measured on just the people who received payments, to remove the effects of the country's major trade and industrial drivers. By understanding the impacts on the recipients, it will be easier to understand the multiplier effect that the program has on earnings.

The predicted effect on poverty reduction is that it would have a significant effect. In 2005, the percentage of Paraguayans living below the poverty line was considered to be 38.6% overall, and 44.2% of people in rural areas. At the national level, this equates to roughly 2,432,800 people (IndexMundi, 2014). With an average family size of two children, Tekopora would bring 4500 * 4 = 18,000 Paraguayans out of poverty. The new percentage of Paraguayans living below the poverty line should be 38.3%. This assumes that all Tekopora recipients are lifted above the poverty line. The poverty line is $2 per day in Paraguay, and thus no Tekopora recipients would be lifted out of poverty on the strength of their Tekopora payments alone, which means that less than 100% are going to lifted above the poverty line, unless there are significant and universal multiplier effects.

Lastly, Tekopora had the objective of increasing access to education. Education being more direct and personal, it is only relevant to look at the number of children or percentage of children from recipient families who are able to attend school who were not previously able to attend.

Known Outcomes

In the first few years after the program was initiated, it grew, so that these impacts were likely to be more significant than the initial rough estimates. There were a few studies published that sought to highlight the outcomes of the program. While some were published by Tekopora supporters, they will be taken at face value here.

One of the early studies, based on the first couple of years of the program, found that there was no significant increase in the quality of life, an index that had been used to determine who the beneficiaries of the program should be in the first place. There were positive outcomes, however, at the individual level for many recipients. Per capita income among the targeted groups increased 31% during the Tekopora study period. Per capita consumption also increased, by 9%, during this period (Soares, Ribas & Hirata, 2008).

With respect to poverty reduction, it was found that there was a 17% reduction in poverty, which is perhaps poorer than would have been anticipated (Soares, Ribas & Hirata, 2008). It has been speculated that the program was insufficient to life very many of its recipients out of poverty, because Tekopora was targeted at some of Paraguay's poorest districts, and families. Thus, the payments were indeed insufficient for these people to escape poverty. Any targeting within these poor districts would only serve to differentiate the extremely poor from the moderately poor (Ribas, Hirata & Soares, 2008).

Finally, there is the question of education. Tekopora was expected to provide a means by which rural families could, among other things, invest in their children's education. It was found that there was a 5 percentage point increase in school attendance rates. There was also an increase in grade progression of 4%, so the gains in education were relatively modest, despite all of the recipients having children (Soares, Ribas & Hirata, 2008). There is not much evidence to suggest widespread use of Tekopora funds for education. This is possibly because, again, the program only really serves to differentiate the moderately poor from the extremely poor. That implies that perhaps there are other priorities more important than education for the majority of program recipients. Indeed, spending in other areas increased more than spending in education. Beneficiaries were 20% more likely to save money than non-beneficiaries, which in some cases might mean that there was a minimal change in the lifestyle. There were investments in agricultural production, 45% overall and 24% in vegetable production. Thus, food was one of the major areas of investment -- and indeed total food expenditures declined among recipients as they clearly invested in order to improve their own food security.

A final note in that even though spending on educational enrollment did not increase much, and there were also few investments in new clothes for children, there was a statistically significant increase in health care spending on the children of recipients (Soares, Ribas & Hirata, 2008). Many recipients reported that their children had gone to the health clinic, something that they had been unable to afford before Tekopora. Thus, the picture painted here is that a family would spend on a health clinic visit, invest some money to expand their agricultural production and would often save much of whatever was left over.