UCL Discovery
UCL home » Library Services » Electronic resources » UCL Discovery

Indirect effects of an aid program: how do liquidity injections affect non-eligibles' consumption?

De Giorgi, G; Angelucci, M; (2006) Indirect effects of an aid program: how do liquidity injections affect non-eligibles' consumption? (Discussion Papers in Economics 06-01 ). Department of Economics, University College London, UCL (University College London), Department of Economics, University College: London, UK. Green open access

[img]
Preview
PDF
2554.pdf

Download (404kB)

Abstract

Aid programs in developing countries are likely to affect both the treated and the non-treated households living in the targeted areas. Studies that focus on the treatment effecton the treated may fail to capture important spillover effects. We exploit the unique designof an aid program's experimental trial to identify its indirect effect on consumption for non-eligible households living in treated areas. We find that this effect is positive, and that itoccurs through changes in the insurance and credit markets: non-eligible households receivemore transfers, and borrow more when hit by a negative idiosyncratic shock, because of theprogram liquidity injection; thus they can reduce their precautionary savings. We also testfor general equilibrium effects in the local labor and goods markets; we find no significantchanges in labor income and prices, while there is a reduction in earnings from sales ofagricultural products, which are now consumed rather than sold. We show that this classof aid programs has important positive externalities; thus their overall effect is larger thanthe effect on the treated. Our results confirm that a key identifying assumption - that thetreatment has no effect on the non-treated - is likely to be violated in similar policy designs. Aid programs in developing countries are likely to affect both the treated and the non-treated households living in the targeted areas. Studies that focus on the treatment effecton the treated may fail to capture important spillover effects. We exploit the unique designof an aid program's experimental trial to identify its indirect effect on consumption for non-eligible households living in treated areas. We find that this effect is positive, and that itoccurs through changes in the insurance and credit markets: non-eligible households receivemore transfers, and borrow more when hit by a negative idiosyncratic shock, because of theprogram liquidity injection; thus they can reduce their precautionary savings. We also testfor general equilibrium effects in the local labor and goods markets; we find no significantchanges in labor income and prices, while there is a reduction in earnings from sales ofagricultural products, which are now consumed rather than sold. We show that this classof aid programs has important positive externalities; thus their overall effect is larger thanthe effect on the treated. Our results confirm that a key identifying assumption - that thetreatment has no effect on the non-treated - is likely to be violated in similar policy designs.

Type: Report
Title: Indirect effects of an aid program: how do liquidity injections affect non-eligibles' consumption?
Open access status: An open access version is available from UCL Discovery
Additional information: Imported via OAI, 20:31:45 23rd Feb 2007
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/2554
Downloads since deposit
685Downloads
Download activity - last month
Download activity - last 12 months
Downloads by country - last 12 months

Archive Staff Only

View Item View Item