Does Money Matter The Effects of Cash Transfers on Child Health and Development in Rural Ecuador Christina Paxson Center for Health and Wellbeing Princeton University Norbert Schady World Bank March 2007 We thank the Center for Economic and Policy Studies at Princeton University the Government of Ecuador and the World Bank for funding for this study Anne Case Angus Deaton Edward Miguel and participants at seminars at Columbia University Princeton University and the American Economic Association 2007 Annual Meetings for their comments and Tom Vogl and Lisa Vura Weis for excellent research assistance We also acknowledge the collaboration at every stage of this project with our colleagues at the Secretar a T cnica del Frente Social in Ecuador in particular Santiago Izquierdo Mauricio Le n Ruth Lucio Juan Ponce Jos Rosero and Yajaira V zquez This paper is a draft Do not cite or quote without permission from the authors Comments are welcome Does Money Matter The Effects of Cash Transfers on Child Health and Development in Rural Ecuador March 2007 ABSTRACT This paper examines how a government run cash transfer program targeted to poor mothers in rural Ecuador influenced the health and development of their children This program is of particular interest because unlike other transfer programs that have been implemented recently in Latin America receipt of the cash transfers was not conditioned on specific parental actions such as taking children to health clinics or sending them to school This feature of the program makes it possible to assess whether conditionality is necessary for programs to have beneficial effects on children Random assignment at the parish level is used to identify the program s effects We find that the cash transfer program had positive effects on the physical cognitive and socio emotional development of children and the treatment effects were substantially larger for the poorer children than for less poor children Among the poorest children in our sample children whose mothers were eligible for transfers had outcomes that were on average more than 20 percent of a standard deviation higher than those for comparable children in the control group Treatment effects are somewhat larger for girls and for children with more highly educated mothers We examine three mechanisms better nutrition greater use of health care and better parenting through which the transfers might influence child development The program appeared to improve children s nutrition and increased the chance they were treated for helminth infections However children in the treatment group were not more likely to visit health clinics for growth monitoring and the mental health and parenting or their mothers did not improve JEL codes I12 O12 Christina Paxson 316 Wallace Hall Princeton University Princeton NJ 08544 cpaxson princeton edu Norbert Schady Development Research Group Room MC 3 551 World Bank Washington DC 20433 nschady worldbank org I Introduction In 2003 the government of Ecuador launched a new cash transfer program the Bono de Desarrollo Humano BDH targeted to poor families with children The transfer is small only 15 per month per family but it represents a non trivial 10 percent increase in family expenditure for the average eligible family Unlike transfers made by a variety of programs in Latin America including the much studied Oportunidades program in Mexico formerly known as PROGRESA in Ecuador women in eligible families have received what is referred to as the Bono with no strings attached Random assignment was built into the roll out of the BDH Two separate randomized experiments were conducted One was designed to examine the effects of the Bono on poverty and educational attainment among school aged children The other experiment which is the concern of this paper was designed to examine how the Bono affected the health and development of pre school aged children Parishes were randomly assigned to treatment and control groups In treatment parishes poor families with pre school aged children were eligible to receive the Bono early in the roll out in control parishes families were not offered the Bono until several years later The families under study were interviewed prior to the introduction of the BDH and again before the control parishes were included in the program The randomized introduction of the BDH provides an opportunity to answer a basic question how do cash transfers affect the health and development of young children This question is important because poor health and delayed development in early childhood may have long lasting consequences for health and economic status Studies from developed countries that have tracked children into adulthood show that healthier and taller children do better on tests of cognitive ability these children grow into taller adults and earn significantly higher wages Case and Paxson 2006 see also Connolly Micklewright and Nickell 1992 Currie and Thomas 1999 Feinstein 2003 Robertson and Symons 2003 In poor countries early childhood developmental outcomes also appear to be important for success in early adulthood A recent review paper makes the case that early cognitive and socio emotional development is a strong predictor of school attainment in Guatemala South Africa the Philippines Jamaica and Brazil even after controlling for wealth and maternal education Grantham McGregor et al 2007 The authors conclude that at least 200 million children in the developing world fail to reach their potential in cognitive development with serious consequences for their health as adults and for their earnings capacity There is clear evidence that within developing countries children from lower income families are more likely to experience worse health and to do less well on assessments of cognitive and behavioral development However there is much less evidence on whether improvements in income levels result in healthier children with better developmental outcomes The difficulty establishing causal effects of income on children s outcomes is clear while money may improve children s health and development it could be that families that are better equipped to earn higher incomes are also better able to produce and nurture healthier and more able children If so income transfers may not have sizeable effects on child outcomes It is also possible that cross sectional comparisons of children s outcomes in families with more or less income may understate the likely