Rates of Return of Social Protection The case for non-contributory social transfers in Cambodia...
Transcript of Rates of Return of Social Protection The case for non-contributory social transfers in Cambodia...
Rates of Return of Social Protection
The case for non-contributory social transfers in CambodiaFranziska Gassmann
Arusha, Tanzania – 17 December 2014
Maastricht Graduate School of Governance
The usual arguments for extending social protection rely on…
• Human rights • Empirical evidence on impacts• Pilot projects• Affordability studies
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Rationale for investment case
• Additional arguments are needed to move SP up the national development agendas– Demonstrate value for money– Analyze fiscal sustainability– Prove cost-effectiveness, capture multidimensional effects– Compare with alternative investments
• Develop economic argument for social protection– Costs AND benefits– Short term AND long term– Direct AND indirect
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Non-contributory social protection as economic investment
• Paradigm shift: SP not just as a cost for the economy – Source of resilience in tough times– Support for growth and productivity in good times– Mechanism for social inclusion
• SP and economic growth – transmission channels– Building and protecting human capital, child wellbeing– Fostering productive investments, protect assets– Reducing liquidity constrains– Enhancing community assets, infrastructure– Stabilizer of aggregate demand, improving social cohesion,
making reforms feasible
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Background• Cambodia has achieved rapid economic development and
poverty reduction.• Annual GDP growth of 7.7% on average (1995-2011).• GNI per capita US$): $830 (2011) (low income country)• Human Development Index: 0.523 in 2011 (#139)
• NSPS launched at the end of 2011.• Double objective: economic stability and human development
• Objective of our study:• Contribute to the evidence on the links between social protection
investments and socio-economic development in Cambodia• “What are the economic returns of social protection in the mid-and
long term?”
• Supported by UNICEF and Royal Government of Cambodia
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Data and methodology
• Rates of Return: relation between net benefits and costs
• Data: CSES (2004 and 2009)• Microsimulation (steps):
• Static (cost-effectiveness): changes on poverty and inequality (direct distributional effect)
• Returns of human capital (education) at the household level• Behavioural (income) effects
• School attendance (education)• Nutrition (health)• Labour (participation and supply)
• Dynamic: 20 periods
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RoR study Cambodia – Model
Household consumption
Poverty and inequality
Education(school attendance)
Health(underweight)
Labour participation
Human capital
Labour productivity
Social protection
Economic performance
Return
Direct (distributional) effects
Behavioural (income) effects
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Returns to human capital
• An additional year of education is related with a 4.1% higher wage.• Low in international comparison mainly low-
skilled employment with limited productivity
• An additional year of education is related with a 1.8% higher household consumption for a poor rural household.
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Behavioral (income) effects
• A 10% increase in the level of consumption is related with a 5.6 percentage points higher probability to attend lower secondary school for a poor rural person
• 10% increase in consumption is related with 0.4 percentage points lower probability of being underweighted.
• A 10% increase in household consumption is related with a 7.8 percentage points higher probability of formal work for poor persons between 18 and 64 years old in rural areas.
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Behavioral (income) effects
Model: 2SLS for all households
Dependent variable (independent variable) Urban(non-poor)
Urban (poor)
Rural(non-poor)
Rural(poor)
log of household consumption per capita (maximum level of education within the household)
0.042*** 0.016** 0.026*** 0.018***(0.005) (0.007) (0.003) (0.002)
Model: Probit model for individuals 6-25 years old
Dependent variable (independent variable)Education level (rural-poor)
Primary Lower secondary
Upper secondary
School attendance (log of household consumption per capita)
0.226** 0.560** 0.373(0.089) (0.262) (0.516)
Model: Probit model for children under 5 years old
Dependent variable (independent variable) National National (poor)
Rural(poor)
Underweight (log of household consumption per capita)-0.043*** -0.048 -0.038
(0.015) (0.038) (0.041)
Underweight (no toilet facility in the house = 1)0.026 0.062** 0.081***
(0.016) (0.029) (0.029)
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RoR study Cambodia – Policy
Social Protection Instrument
Target Population Benefit
Transfer Total Cost
KHR billion
% of GDP
KHR billion
% of GDP
Cash transferPoor children 0-6 years old in rural areas, up to two per household
USD 12 per month (60% rural food poverty line) 391 0.9 430 1.0
Social pension
Poor persons 65+ in rural areas
USD 20 per month (100% rural food poverty line) 139 0.3 153 0.4
Scholarship Poor children at lower secondary in rural areas
USD 50 per year (20% rural food poverty line) 25 0.1 28 0.1
Public works
Poor persons 18-64 years old in rural areas, up to 1 per household (80 days per year)
USD 2.3 per day 50 0.1 75 0.2
• Total costs is around 1.6% of GDP (USD 166 million, 2009).
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RoR study Cambodia – Results
Benefit Scenario Period 1 Period 5 Period 10 Period 15 Period 20
Average years of education (18-64 years old)
With social protection 6.52 7.67 9.00 10.40 11.62
Without social protection 6.52 7.65 8.89 10.22 11.41
Benefit (difference) 0.00 0.02 0.11 0.19 0.21
Total household consumption average annual
growth rate (%)
With social protection 1.55 2.54 2.77 2.82 2.71
Without social protection 0.00 2.29 2.65 2.74 2.67
Benefit (difference) 1.55 0.26 0.12 0.07 0.04
Poverty headcount (%)
With social protection 23.74 20.7 15.6 10.9 7.8
Without social protection 29.71 26.7 19.8 14.7 10.4
Benefit (difference) -6.0 -6.0 -4.2 -3.8 -2.6
Inequality (Gini of consumption)
With social protection 0.313 0.314 0.314 0.308 0.302
Without social protection 0.329 0.328 0.327 0.320 0.312
Benefit (difference) -0.016 -0.014 -0.013 -0.012 -0.010
Cost Policy Period 1 Period 5 Period 10 Period 15 Period 20
Cost (% of GDP) Social protection package 1.6 1.4 1.2 0.9 0.8
RoR Discount rate Period 1 Period 5 Period 10 Period 15 Period 20
Rate of Return (Absolute benefit on total
household consumption / absolute cost) (%)
2% -11.6 -10.0 -4.1 5.8 14.7
3% -11.6 -10.1 -4.3 5.0 13.3
4% -11.6 -10.1 -4.6 4.3 11.9
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Results: benefit (human capital)• Labour force’s median education level
increases faster due to social transfers.Labour force median education level (schooling)
8.5
6.0
8.6
0.08
-0.0200.0000.0200.0400.0600.0800.1000.1200.1400.1600.180
6.0
6.4
6.8
7.2
7.6
8.0
8.4
8.8
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Without SPI With SPI Bs (schooling - years)
Years of education Difference (Bs)
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Results: Benefit (hh consumption)• Total household consumption grows faster if
SPI are implemented.Total household consumption average growth rate
2.67
1.55
2.71
0.04
-0.02
0.18
0.38
0.58
0.78
0.98
1.18
1.38
1.58
1.78
0.00
0.50
1.00
1.50
2.00
2.50
3.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Without SPI With SPI Bc (hh consumption growth rate)
Household Consumption average growth rate Difference (Bc)
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Results: Benefit (poverty reduction)
• Poverty headcount decreases faster because of SPI Head count
29.7
25.5
19.8
14.7
10.4
23.720.7
15.6
10.97.8
-6.0
-5.5
-5.0
-4.5
-4.0
-3.5
-3.0
-2.50.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Without SPI With SPI Bp (poverty head count)
Poverty (head count) Difference (Bp)
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Results
• Total cost of SPI decreases over time.
684
327
1.6
0.8
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
300
350
400
450
500
550
600
650
700
750
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Total cost (KHR billion) Total cost (% of GDP)
KHR (billion) % of GDP
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Rates of Return – Results
14.711.9
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
RoRC (d=2%) RoRC (d=4%) RoRC (d=6%)
Period
• A basic package of SPI for poor rural individuals in Cambodia has a RoR of between 12% and 15%, after 20 periods (years). It becomes positive after 12 periods (years).
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RoR study Cambodia – Final remarks
• Dynamic microsimulation provides a novel approach to analyse economic returns of social protection.
• Modelling options depends on data constraints.• Costs and specific impacts have been estimated. The model can be used to
analyze potential economic returns in the mid- and long- term.
• Any model is always a simplification of real life.• Effects, benefits and returns may be higher if complementary
policies are also implemented.• Improving health and education coverage and quality.• Enhancing sanitation conditions.• Fostering economic productivity, formal labour market, industrialization,
innovation and technical change.
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RoR study Cambodia – Final remarks
• Additional effects may increase benefits and RoR. • Behavioral (non-economic) effects due to SPI design.• Spillover effects and regional multiplier.• Institutional change and social cohesion.• Health status improvements (e.g. nutrition).
• Financing aspects (taxation), administrative issues (inefficiency) and targeting errors may reduce RoR.
• Specific SPI design (e.g. targeting, conditionality, payment mechanism) may affect RoR.