Friday, May 24, 2013

Credit constraints faced by youths and structural transformation

Blattman et al. worked with the Ugandan government and World Bank to randomize large, relatively unconditional cash transfer program in Uganda (Youth Opportunities Program of the Northern Uganda Social Action Fund), and followed nearly 2500 people two and four years afterwards. They found that credit constraints are holding back youths. Excerpts from Blattman’s blog and paper below: 
  • Most start new skilled trades like metalworking or tailoring.
  • Labor supply (employment hours) increases 17%. Those new hours are spent in high-return activities, and so earnings rise nearly 50%, especially women’s.
  • Earnings rise nearly 50%, especially women’s.
  • The people who do the best are those who had the least capital and credit to begin with.
  • Credit constraints seem to be less binding on men, since men in the control group start to catch up over time. Female controls do not, partly because they have worse access to starting capital. With the grant they take off, further even than men. Without it, they stagnate, even more so than men.
  • Despite huge economic effects, there is little impact on cohesion, aggression, and collective action (peaceful or violent). So, public spending on the grounds of social stability cannot be fully justified. But the impacts on poverty and structural change alone probably justify big public investment.