PROGRESA and Its Impacts on the Welfare of Rural Households in Mexico Emmanuel Skoufias RESEARCH REPORT 139 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE WASHINGTON, DC Copyright © 2005 International Food Policy Research Institute. All rights reserved. Sections of this material may be reproduced for personal and not-for-profit use without the express written permission of but with acknowledgment to IFPRI. To reproduce the mate- rial contained herein for profit or commercial use requires express written permission. To obtain permission, contact the Communications Division . International Food Policy Research Institute 2033 K Street, NW Washington, DC 20006-1002 USA Telephone +1-202-862-5600 www.ifpri.org Library of Congress Cataloging-in-Publication Data Skoufias, Emmanuel. PROGRESA and its impacts on the welfare of rural households in Mexico / Emmanuel Skoufias. p. cm. — (Research report ; 139) Includes bibliographical references. ISBN 0-89629-142-1 (alk. paper) 1. Rural poor—Government policy—Mexico. 2. Programa de Educación, Salud y Alimentación (Mexico City, Mexico)—Evaluation. 3. Poverty— Government policy—Mexico. 4. Mexico—Social policy. I. Title. II. Research report (International Food Policy Research Institute) ; 139. HC140.P6.S58 2005 362.5′56′0972—dc22 2005006221 Contents List of Tables iv List of Figures v Acronyms and Abbreviations vi Foreword vii Acknowledgments viii Summary ix 1. Background and Program Description 1 2. PROGRESA Seen through an Economic Lens 13 3. The Experimental Design and Information Sources Used to Evaluate PROGRESA 26 4. An Evaluation of PROGRESA’s Targeting and Its Impact on Poverty 34 5. Summary of the Methods Used to Evaluate the Impact of PROGRESA 40 6. A Summary of the Findings of the Impact Evaluation and a Cost Analysis of the Program 48 7. Conclusions and Future Policy Considerations 65 Appendix A: Summary of Mexican Anti-Poverty Programs 68 Appendix B: Characteristics of the Localities in the Evaluation Sample 72 Appendix C: On the Impact of PROGRESA on Poverty 75 References 81 iii Tables 1.1 PROGRESA monthly cash transfer schedule (nominal pesos) 4 1.2 Composition of the basic health services package 5 1.3 Annual frequency of health care visits required by PROGRESA 6 1.4 Micronutrients contained in the food supplements 8 1.5 PROGRESA transfers to beneficiary households from November 1998 to October 1999 (pesos) 10 3.1 Decomposition of the sample of all households in treatment and control villages 29 3.2 Number of households and individual members covered in each survey round 32 5.1 Key outcome indicators and impact estimators used in the quantitative evaluation of PROGRESA 45 C.1 Poverty measures and difference-in-difference tests for total income per capita using canasta basica as poverty line 78 C.2 Poverty measures and difference-in-difference tests for total income per capita using 50th percentile of per capita value of consumption as poverty line 79 iv Figures 1.1 Average cash transfer paid out by PROGRESA by month 9 2.1 Effect of conditional cash transfers on children’s school attendance and work 19 4.1 Percentages of households in treatment localities that receive transfers from other programs and PROGRESA 37 6.1a School enrollment and labor force participation of boys in PROGRESA communities prior to program implementation 49 6.1b School enrollment and labor force participation of girls in PROGRESA communities prior to program implementation 49 6.2a School attendance of children 8–11 years old 50 6.2b School attendance of children 12–17 years old 50 6.3a Incidence of illness for newborns to two-year-olds 57 6.3b Incidence of illness for three- to five-year-olds 57 6.4 Daily visits to public clinics 58 C.1a Mean household total income from childhood (excluding PROGRESA cash transfers) among beneficiary households with children 8–17 years of age 77 C.1b Mean household labor income from children among beneficiary households with children 8–17 years of age 77 C.1c Mean household other income from children among beneficiary households with children 8–17 years of age 77 v Acronyms and Abbreviations CIMO Programa Calidad Integral y Modernizacion CONAFE Consejo Nacional de Fomento Educativo CONASUPO Compania Nacional de Subsistencias Populares COPUSI Programa de Cocinas Polulares y Unidades de Servicios Integrales DICONSA Distribuidora Comercial CONASUPO ENCASEH Encuesta de Caracteristicas Socioeconomicas de los Hogares ENCEL Encuesta de Evaluacion de los Hogares ENIGH Encuesta Nacional de Ingreso-Gasto de los Hogares FISM Fondo para la Infraestructura Social Municipal FONAES Fondo Nacional de Apoyo a Empresas Sociales IFPRI International Food Policy Research Institute IMSS Instituto Mexicano del Seguro Social INI Instituto Nacional Indigenista LICONSA Leche Industrial CONASUPO PASAF Programa de Asistencia Social Alimentaria a Familias PET Programa de Empleo Temporal PROBECAT Programa de Becas de Capacitacion para Desempleados PROCAMPO Programa de Apoyos Directos al Campo PROGRESA Programa Educación, Salud Alimentacion PRONASOL Programa Nacional de Solidaridad SEDESOL Secretaria de Desarrollo Social SEP Secretaria de Educación TORTIBONO Subsidio a la Tortilla vi Foreword In the second half of the twentieth century, many developing countries adopted broad social assistance programs, like food subsidies, ostensibly designed to help poor people. Their ef- fectiveness was mixed and, unfortunately, many of these expensive programs did not make much difference in the lives of poor people, much less help them climb permanently out of poverty. In the 1990s Mexico took a completely new approach. It launched a social program— PROGRESA—that was revolutionary in two ways. First, PROGRESA aimed to integrate in- terventions in health, education, and nutrition simultaneously, based on an understanding that these dimensions of human welfare are interdependent and that poor health, education, and nu- trition are both causes and consequences of poverty. Second, PROGRESA was designed from the beginning to be continually evaluated and improved, so that it would become ever more effective at improving the well-being of Mexico’s poorest people. From 1998 to 2000 the International Food Policy Research Institute (IFPRI) assisted the PROGRESA administration in evaluating the program. This research resulted in a series of IFPRI reports, synthesized here, on aspects of PROGRESA’s performance. The evaluation not only highlighted areas of success, but also suggested needed improvements in the program. On the one hand, for example, the research showed that PROGRESA has helped keep poor chil- dren in school longer, improved the health of young children and adults, increased women’s use of prenatal care, and improved child nutrition. On the other hand, the evaluation revealed that PROGRESA could have a greater impact on school enrollment by focusing on attendance in secondary schools—the stage at which many poor children drop out. In the election of 2000, the people of Mexico voted a new party into power. Yet, faced with evidence of PROGRESA’s effectiveness, the new government decided to keep the program (renamed Oportunidades) and to make needed improvements in its operation. IFPRI’s research on PROGRESA has advanced our knowledge about policy steps that governments can take to improve the capacities of poor people, who may require interventions in several areas to make real headway in overcoming poverty. In the meantime comparable programs have been tested or implemented in other countries, including Brazil, Honduras, and Nicaragua, and it would be promising to explore their adaptation in African and Asian coun- tries as well. It is our hope that research of this kind will encourage replications, adaptations to country circumstances, and rigorous evaluation of social programs in many developing countries. Joachim von Braun Director General, IFPRI vii viii Acknowledgments Iam deeply grateful to Lawrence Haddad, director of the Food Consumption and Nutrition Division of IFPRI, for providing me the opportunity to lead the PROGRESA evaluation. As a team leader I had the honor and pleasure to work closely with all the members of the superb IFPRI-PROGRESA research team and affiliated institutions. Specifically, the IFPRI team members include Dr. Michelle Adato, Dr. David Coady, Dr. Benjamin Davis, Dr. Béné- dicte de la Brière, Dr. Sudhanshu Handa, Dr. Rebecca Lee Harris, Dr. John Hoddinott, Dr. Agnes Quisumbing, and Dr. Marie Ruel. Habiba Djebbari, Ryan Washburn, and Lyla Kuriyan provided excellent research assistance, while Lourdes Hinayon and Bonnie McClafferty pro- vided superb administrative and editorial support. A number of academics from U.S. and Mex- ican universities have also played a critical role in the design and implementation of the PRO- GRESA evaluation. These include Professor Jere Behrman (University of Pennsylvania), Professor Paul J. Gertler (University of California, Berkeley), Professor T. Paul Schultz (Yale University), Professor Petra E. Todd (University of Pennsylvania), Dubravka Mindek (Escuela Nacional de Antropología y Historia), and Professor Graciela Teruel (Universidad Iberoamer- icana). Finally, I acknowledge my deep gratitude to the late director of the PROGRESA pro- gram, Dr. José Gómez de León, and to the members of his wonderful team: Daniel Hernan- dez, Monica Orozco, Patricia Muniz, Humberto Soto, Sergio de la Vega, Mari-Carmen Huerta, Raul Perez, Daniela Sotres, Beatriz Straffon, and Hadid Vera. Summary In early 1998, the International Food Policy Research Institute (IFPRI) was asked to assist the PROGRESA administration to “determine if PROGRESA is functioning in practice as it is intended to by design.” This document synthesizes the findings contained in a series of reports prepared by IFPRI for PROGRESA between November 1998 and November 2000. A more detailed description of the research, rationale, and methods appears in the original IFPRI reports, which are provided in English and in Spanish on the CD enclosed with this publication. PROGRESA is one of the major programs of the Mexican government aimed at develop- ing the human capital of poor households. Targeting its benefits directly to the population in extreme poverty in rural areas, PROGRESA aims to alleviate current and future poverty levels through cash transfers to mothers in households. The cash transfers provided are condi- tioned on regular school attendance and visits to health care centers. At the end of 1999, PROGRESA covered approximately 2.6 million families, representing one ninth of all fami- lies in Mexico; the beneficiaries comprised about 40 percent of all rural families. At that time, the program operated in almost 50,000 localities in more than 2,000 municipalities and 31 states. PROGRESA’s budget of approximately US$777 million in 1999 was equivalent to 0.2 percent of Mexico’s gross domestic product (GDP). For Mexico, the design of PROGRESA represents a significant change in the provision of social programs. First, in contrast to previous poverty alleviation programs in Mexico, PROGRESA applies targeting at the household level to ensure that the resources of the pro- gram are directed and delivered to households in extreme poverty, that is, the households that can most benefit from the program. General food subsidies, such as the tortilla price subsidy [Subsidio a la Tortilla (TORTIBONO)], are widely acknowledged to have had a high cost in the government budget and a negligible effect on poverty because of the leakage of benefits to non-poor households. In addition, more decentralized, community-based, demand-driven pro- grams such as the earlier anti-poverty program PRONASOL, in place during 1988 and 1994, were thought to be susceptible to local political influences and not very effective at reaching those in extreme poverty.1 Under PROGRESA, communities are first selected using a mar- ginality index based on census data. Then, within the selected communities, households are chosen using socioeconomic data collected for all households in the community. Second, unlike earlier social programs in Mexico, PROGRESA contains a multisectoral focus. By design, the program intervenes simultaneously in health, education, and nutrition. The integrated nature of the program reflects a belief that addressing all dimensions of human capital simultaneously has greater social returns than their implementation in isolation. Im- proved health and nutritional status not only are desirable in themselves, but also have an in- direct impact through enhancing the effectiveness of education programs, since, for example, school attendance and performance are often adversely affected by poor health and nutrition. Poor health is therefore both a cause as well as a consequence of poverty. Also by design, 1See Yaschine (1999) and Levy (1994) for a description of the program. ix PROGRESA differs in the mechanism of delivering its resources. Recognizing the potential of mothers to use resources effectively and efficiently in a manner that reflects the immediate needs of the family, PROGRESA gives benefits exclusively to mothers. Specifically, the education component of PROGRESA is designed to increase school en- rollment among youth in Mexico’s poor rural communities by making education grants avail- able to pupils’ mothers, who then are required to have their children attend school regularly. In localities where PROGRESA currently operates, households that have been characterized as poor, and have children enrolled in grades 3–9, are eligible to receive these educational grants every two months. The levels of these grants were determined taking into account, among other factors, what a child would earn in the labor force or contribute to family pro- duction. The educational grants are slightly higher at the secondary level for girls, given their propensity to drop out at earlier ages. Every two months, confirmation of whether children of beneficiary families attend school more than 85 percent of the time is submitted to PROGRESA by schoolteachers and directors, and this triggers the receipt of bimonthly cash transfers for school attendance. In the area of health and nutrition, PROGRESA brings basic attention to health issues and promotes health care through free preventive interventions, such as distribution of nutritional supplements, and education on hygiene and nutrition as well as monetary transfers for the pur- chase of food. Receipt of monetary transfers and nutritional supplements is tied to mandatory health care visits to public clinics. This aspect of the program emphasizes targeting benefits to children under five, and pregnant and lactating women, and is administered by the Ministry of Health and by IMSS-Solidaridad, a branch of the Mexican Social Security Institute, which provides benefits to uninsured individuals in rural areas. Nutritional supplements are given to children between the ages of four months and two years, and to pregnant and breastfeeding women. If signs of malnutrition are detected in chil- dren between two and five years of age, nutritional supplements will also be administered. The nutritional status of beneficiaries is monitored by mandatory visits to the clinic and is more frequently monitored for children five years of age and under and pregnant and lactating women. At each visit, young children and lactating women are measured for wasting (weight- for-height), stunting (height-for-age), and weight-for-age. An appointment monitoring system is set up and a nurse or doctor verifies adherence. Every two months the health care profes- sionals submit certification of beneficiary visits to PROGRESA, which triggers the receipt of the cash transfer for food support. The average monthly payment (received every two months) by a beneficiary family amounts to 20 percent of the value of monthly consumption expenditures prior to the initia- tion of the program. One additional requirement of the PROGRESA program is that house- holds benefiting from PROGRESA were to stop receiving benefits from other programs in ef- fect, such as Niños de Solidaridad, Abasto Social de Leche, de Tortilla, and the National Institute of Indigenous People (INI). This requirement of the PROGRESA program represents the short-run objective of the new poverty alleviation strategy of the Mexican government to minimize duplication of benefits to poor families. A longer run objective is to absorb the variety of poverty alleviation programs within one program such as PROGRESA that repre- sents an integrated approach to poverty alleviation. Poverty alleviation programs such as PROGRESA are an important component of the set of instruments that government has at its disposal for redistributing income and assets among households. Program evaluation can improve the design and implementation of programs so that they can have a greater effect on household welfare. In addition, program evaluation, when applied consistently across a wide spectrum of programs, allows governments to have a stronger effect on social welfare with the same budget by reallocating resources from less to x SUMMARY more effective programs. In addition to these economic considerations, there are also social and political reasons for justifying program evaluations. Primary among these is that program evaluation can serve as a means of increasing the accountability of governments toward their citizens by providing a template for comparing sensibly whether public funds are used effec- tively toward poverty alleviation. In the case of PROGRESA the national elections that were forthcoming in the year 2000 and the increasing public support toward the opposition parties contributed to an unprece- dented willingness by the Zedillo administration to support a rigorous and politically neutral evaluation of the program. It is hard to dismiss the interpretation that the design of the pro- gram, with its careful targeting of the benefits to poor rural households, along with the deci- sion to evaluate PROGRESA, also served political purposes. For example, the targeting of the program to households in extreme poverty and the provision of the cash transfers directly to the beneficiary households signaled a break from the wasteful practices of the past. At the same time, the decision to evaluate the program established a precedent that any future ad- ministration could hardly afford not to imitate. Until the implementation of PROGRESA in Mexico, as in most developing countries, national poverty alleviation programs were not customarily subjected to rigorous evaluations. In the rare instances in which programs were evaluated, the decision to do so was usually taken years after the implementation of the program. In such situations, it is typically too late to eval- uate the program because the program has already achieved wide coverage and it is practically impossible to construct a reliable comparison group that is essential for the credible evaluation of the program’s impact. PROGRESA distinguishes itself further by the fact that the elements essential for a rigor- ous evaluation of the program’s impact were taken into consideration since the very early stages of the implementation of the program. The strategy adopted for the evaluation of PROGRESA consisted of the following two critical elements: 1. The adoption of an experimental design in the early stage of the implementation of the program, which allows the measurement of program impact by comparing the mean values of key outcome indicators among beneficiary households (treatment group) with similar households that were not yet covered by the program (comparison/control group). The experimental evaluation design of PROGRESA offers the opportunity to evaluate the impact of the program on beneficiary households by systematically removing the influ- ence of other factors that might have contributed to the observed changes. 2. The collection of information from these two groups of households (treatment group and comparison groups) before and after the implementation of the program. Specifically, the full sample used in the evaluation of PROGRESA consists of repeated ob- servations (panel data) collected for 24,000 households from 506 localities in the seven states of Guerrero, Hidalgo, Michoacan, Puebla, Queretaro, San Luis Potosi, and Veracruz. Of the 506 localities, 320 localities assigned to the treatment group (where PROGRESA was in op- eration) and 186 localities were assigned as controls. As originally planned, the localities serv- ing the role of a control group started receiving PROGRESA benefits by December 1999. A total of 24,000 households from 506 localities in these states were interviewed periodically between November 1997 and November 1999. Focus groups and workshops with beneficiar- ies, local leaders, PROGRESA officials, health clinic workers, and schoolteachers were also carried out. The following are some key highlights beginning to emerge from IFPRI’s evalua- tion of the impact of PROGRESA on its target group, Mexico’s rural poor: SUMMARY xi • After three years poor children in rural areas of Mexico where PROGRESA is currently operating are more likely to enroll in school. Mexico’s primary school children typically maintain a primary school enrollment rate of 93 percent but generally begin dropping out of school after completing the sixth grade. Enrollment rates in general witness an- other steep decline as children transition to senior high school. Research reveals that PROGRESA has had the largest impact on children who enter secondary school and represents a percentage increase of enrollment of more than 20 percent for girls and 10 percent for boys. The research revealed that much of the positive impact on enrollment is attributable to increasing continuation rates rather than on getting children who were out of school to return. • The accumulated effect of increased schooling from grades 1–9 suggests that the pro- gram can be expected to increase educational attainment for the poor by 0.66 years of additional schooling by grade 9 (0.72 years of additional schooling for girls, 0.64 years for boys). Given that the average 18-year-old youth typically achieved 6.2 years of com- pleted schooling, PROGRESA effectively can be expected to increase educational attain- ment of poor Mexican rural children by 10 percent. • Improved livelihood security for the poor depends on improving early childhood health care. Frequency and duration of illness have profound effects on the development and productivity of populations. The IFPRI analysis indicates that improved nutrition and preventive health care in PROGRESA areas have made younger children more robust against illness. Specifically, PROGRESA children one to five years of age have a 12 percent lower incidence of illness than non-PROGRESA children. • Adult PROGRESA beneficiaries on average have 19 percent fewer days of difficulty with daily activities, 17 percent fewer days incapacitated by illness, 22 percent fewer days in bed, and are able to walk about 7 percent longer than nonbeneficiaries. • In January 1996, more than a year before PROGRESA began, average visits to health clinics were identical in PROGRESA and non-PROGRESA localities. In 1998, the first full year in which PROGRESA was operational in all treatment localities, visit rates in PROGRESA areas were shown to grow faster than in non-PROGRESA areas. • PROGRESA increased the number of first visits in the first trimester of pregnancy by about 8 percent. This shift to early prenatal care significantly reduced the number of first visits in the second and third trimesters of pregnancy. This positive change in behavior is docu- mented to have a significant improvement in the health of infants and pregnant mothers. • In 1999, median food expenditures were 13 percent higher in PROGRESA households when compared with control households. This increase was driven largely by higher expenditures on fruit, vegetables, meats, and animal products. By November 1999, median caloric acquisition had risen by 10.6 percent. Beneficiaries felt that since the initiation of PROGRESA, poor households are eating better. • The nutrition of preschool children is of considerable importance not only because of concern over their immediate welfare, but also because their nutrition in the formative stages of life is widely perceived to have a substantial and persistent impact on their physical and mental development and on their health status as adults. Stunting—low height-for-age—is a major form of protein-energy malnutrition. In 1998, survey results indicated that 44 percent of 12- to 36-month-old children in PROGRESA regions were stunted. • Data suggest that PROGRESA has had a significant impact on increasing child growth and in reducing the probability of child stunting; an increase of 16 percent in mean growth rate per year (corresponding to 1 cm) for children who received treatment in the critical 12- to 36-month age range. xii SUMMARY • The analysis suggests that PROGRESA may be having a fairly substantial effect on lifetime productivity and potential earnings of currently small children in poor house- holds. IFPRI estimates that the impact from the nutritional supplements alone and their effect on productivity into adulthood could account for a 2.9 percent increase in lifetime earnings. • The administrative costs employed in getting transfers to poor households appear to be small relative to the costs incurred in previous programs and for targeted programs in other countries. According to the program cost analysis, for every 100 pesos allocated to the program, 8.9 pesos are “absorbed” by administration costs. Dropping household targeting would reduce program costs from 8.9 pesos to 6.2 pesos per 100 pesos trans- ferred, while dropping conditioning would reduce the program costs from 8.9 pesos to 6.6 pesos per 100 pesos transferred. Dropping both would reduce these costs to 3.9 pesos per 100 pesos transferred. One of the most important contributions of IFPRI’s evaluation of PROGRESA has been the continuation of the program in spite of the historic change in the government of Mexico in the 2000 elections. The overwhelming (and unprecedented) evidence that a poverty alle- viation program shows strong signs of having a significant impact on the welfare and human capital investment of poor rural families in Mexico has contributed to the decision of the Fox administration to continue with the program and to expand its coverage in the poor urban areas of the country after some improvements in the design of the program. The majority of the improvements in the design of PROGRESA (renamed Oportunidades by the Fox administration) were based on findings of the evaluation of PROGRESA that re- vealed areas of needed improvements in some of the structural components and the operation of the program. For example, the evaluation revealed a larger program impact only on the schooling attendance of children of secondary school age. This suggests that it would be preferable to reorient the funds from primary school to families with children of secondary school age. Oportunidades did exactly that by extending the benefits of the program to chil- dren attending high school (preparatoria) rather than just junior high school, as it was in the earlier PROGRESA. Also, initially the award of PROGRESA’s educational benefits was con- ditional on regular school attendance but not performance. Oportunidades improved on this design feature by linking benefits to performance, such as granting bonuses to encourage suc- cessful completion of a grade, or linking benefits with participation in other programs. For ex- ample, the creation of a related program, Jovenes con Oportunidades, aims to create income- generating opportunities for poor households through preferential access to microcredit, housing improvements, adult education, and social insurance. Yet in spite of these improvements in the program, the evaluation findings suggest that some issues remain to be resolved. For example, the program was found to have no measur- able impact on the achievement test scores of children in beneficiary localities or on their reg- ular school attendance. This implies that if the program is to have a significant effect on the human capital of children, more attention needs to be directed to the quality of education pro- vided in schools. Enrolling in and attending school regularly are only necessary conditions for the improvement of children’s human capital. Finally, it is also important to find ways to main- tain and improve the quality of the information provided in the pláticas. The opportunity to conduct a rigorous evaluation of a program such as PROGRESA has set a higher set of standards for the design and conduct of social policy in Mexico and in Latin America in general. As policymakers now have a better sense of the basic elements of a pro- gram that can be effective toward alleviating poverty in the short run and, perhaps, in the long run, the list of questions and concerns about program choices and design cannot help but grow SUMMARY xiii larger. For example, is it possible for unconditional cash transfers without any “strings” at- tached to have similar or higher impacts on human capital investments of poor rural families? Is the amount of the cash transfer given to families too high? Perhaps a lower cash transfer could achieve the same impact. Is the simultaneous intervention in the areas of education, health, and nutrition areas preferable to intervening in each of these sectors separately? PROGRESA has been accompanied by complementary efforts and resources directed at strengthening the supply and quality of educational and health capacity constraints that might arise as a result of the more intensive use of existing facilities and resources. Perhaps this fea- ture of the program plays a critical role for the success of PROGRESA, and programs that do not pay sufficient attention to the capacity constraints that might arise as a result of the condi- tionality of cash transfers may be less effective. Is it not possible that similar or even higher effects on school attendance can be achieved through alternative programs, such as building new schools or improving the quality of educational services? What if the benefits were given to the fathers rather than the mothers in the household? Are programs aimed toward younger children to be preferred over programs aimed toward older children? The nature of the program and the scope of the evaluation of the program’s impact can pro- vide only a tentative answer to some of these questions. More definite answers can be obtained through the analysis and evaluation of programs that incorporate all or some of these features as part of their structure. Hopefully, early involvement of researchers in the design and evalu- ation of programs implemented in other countries, such as Brazil (Bolsa Familia), Colombia (Familias en Accion), Honduras (PRAF), Jamaica (PATH), Nicaragua (RPS), and Turkey, can shed more light on these critical questions for policy. Finally, the critical question of whether the vicious cycle of poverty and its intergenera- tional transmission are indeed broken can be determined only by following the cohorts of chil- dren currently in the program. At least in Mexico, the evaluation of PROGRESA’s impact in the short term has provided a solid foundation for determining whether the program had a sig- nificant difference in the welfare and earnings of these children as adults. xiv SUMMARY C H A P T E R 1 Background and Program Description In 1997, the federal government of Mexico introduced the Programa de Educación, Salud y Alimentación (the Education, Health, and Nutrition Program), known by its Spanish acronym, PROGRESA, as part of its renewed effort to break the intergenerational trans- mission of poverty. The program has a multiplicity of objectives, aimed primarily at improv- ing the educational, health, and nutritional status of poor families, particularly of children and their mothers. PROGRESA provides cash transfers linked to children’s enrollment and regu- lar school attendance and to clinic attendance. The program also includes in-kind health ben- efits and nutritional supplements for children up to age five and for pregnant and lactating women. The expansion of the program across localities and over time was determined by a planned strategy that involved the annual budget allocations and logistical complexities associated with the operation of the program in very small and remote rural communities (such as verification that the localities to be covered by the program had the necessary educational and health fa- cilities). In consequence, the expansion of the program took place in 11 phases.2 In phase 1, which began in August 1997, 140,544 households in 3,369 localities were incorporated. Phase 2 of the program began in November 1997 when a further 160,161 households in 2,988 lo- calities were incorporated. The greatest expansion occurred in 1998 (i.e., phases 3–6) when nearly 1.63 million families in 43,485 localities were incorporated. By phase 11, the final phase of the program in early 2000, the program included nearly 2.6 million families in 72,345 localities in all 31 states. This constitutes around 40 percent of all rural families and one ninth of all families in Mexico. The total annual budget of the program in 1999 was around $777 million, equivalent to just under 20 percent of the federal poverty alleviation budget or 0.2 per- cent of gross domestic product (GDP). As part of an overall strategy for poverty alleviation in Mexico, PROGRESA works in con- junction with other programs that are aimed toward developing employment and income op- portunities (such as Programa de Empleo Temporal [PET]) and facilitating the formation of physical capital, such as the Fondo para la Infraestructura Social Municipal (FISM) (for a more detailed description of the various anti-poverty programs in Mexico, see Appendix A). For Mexico, the design of PROGRESA represents a significant change in the provision of social programs. First, in contrast to previous poverty alleviation programs in Mexico, PRO- GRESA applies targeting at the household level to ensure that the resources of the program are directed and delivered to households in extreme poverty, that is, the households that can most benefit from the program. General food subsidies, such as the tortilla price subsidy (Sub- 2For more details see Section 4 and Table 1 in Coady (2000). 1 sidio a la Tortilla [TORTIBONO]), are widely acknowledged to have had a high cost on the government budget and a negli- gible effect on poverty because of the leak- age of benefits to non-poor households. In addition, more decentralized, community- based, demand-driven programs such as the earlier anti-poverty program Programa Na- cional de Solidaridad (PRONASOL), in place during 1988 and 1994, were thought to be susceptible to local political influences and not very effective at reaching the ex- treme poor.3 Under PROGRESA, commu- nities are first selected using a marginality index based on census data. Then, within the selected communities, households are chosen using socioeconomic data collected for all households in the community. Second, unlike earlier social programs in Mexico, PROGRESA contains a multi- sectoral focus. By design, the program in- tervenes simultaneously in health, educa- tion, and nutrition. The integrated nature of the program reflects a belief that addressing all dimensions of human capital simultane- ously has greater social returns than their implementation in isolation. Improved health and nutritional status are desirable not only in themselves, but also have an in- direct impact through enhancing the effec- tiveness of education programs since, for example, school attendance and perfor- mance are often adversely affected by poor health and nutrition. Poor health is therefore both a cause as well as a consequence of poverty. Also by design, PROGRESA dif- fers in the mechanism of delivering its resources. Recognizing the potential of mothers to use resources effectively and ef- ficiently in a manner that reflects the imme- diate needs of the family, PROGRESA gives benefits exclusively to mothers. These features of the program, in com- bination with its enormous scale, suggest that the program has the potential to have a significant impact on current and future poverty in Mexico. PROGRESA distin- guishes itself further by the fact that the el- ements essential for a rigorous evaluation of the program’s impact were taken into con- sideration since the very early stages of the implementation of the program. For exam- ple, the PROGRESA administration took advantage of the sequential expansion of the program and adopted an experimental de- sign for its evaluation. This permitted the collection of repeated observations from beneficiary households surveyed before and after the implementation of the program as well as the collection of similar data from comparable households that were not yet covered by the program. This experimental evaluation design of PROGRESA offers the opportunity to evaluate the impact of the program on beneficiary households by measuring the changes that have taken place in the indicators of household investment in human capital and other economic and so- cial measures while systematically isolating the influence of other factors that might have contributed to the observed changes.4 This document synthesizes 24 months of extensive research by International Food Policy Research Institute (IFPRI) re- searchers, academic collaborators, and PROGRESA staff, designed to evaluate the impact of PROGRESA and the extent to which the measured impacts are delivered in a cost-effective manner. The impact evalua- tion focuses primarily on three poverty re- duction areas: improving school enrollment, improving health and nutrition outcomes, and increasing household consumption for poor rural families. Other topics such as the impact of PROGRESA on women’s status, intrahousehold transfers, and work incen- tives are also examined. The synthesis presented here builds on a series of reports 2 CHAPTER 1 3See Yaschine (1999) and Levy (1994) for a description of the program. 4For a more detailed discussion of the variety of quasi-experimental designs available in the evaluation literature, see Valadez and Bamberger (1994) and Ravallion (1999). presented by IFPRI to PROGRESA from November 1998 through November 2000. A more detailed description of the research, rationale, and methods appears in the origi- nal IFPRI reports, which are provided in English and in Spanish in a CD enclosed with this publication. This analysis of the PROGRESA pro- gram comes at a crucial time as other Latin American countries (such as Honduras, Nicaragua, Colombia, Brazil, and Argen- tina) are in the process of revising their so- cial program along lines similar to those of the PROGRESA program in Mexico (Rawl- ings and Rubio 2002). To provide readers with a common knowledge about the program, the require- ments and the benefits of the program, as well as some of its operational aspects, are described in detail. Most of the presentation in this report is drawn from documents pre- pared by the PROGRESA administration as well as from discussions of IFPRI re- searchers with PROGRESA administration officials. Description of the Educational Benefits and Program Requirements Education is seen as a pivotal component of PROGRESA, reflecting the strong empiri- cal link between human capital, productiv- ity, and growth, but especially because it is seen as a strategic factor in breaking the vi- cious cycle of poverty. Investments in edu- cation are therefore viewed as a way of fa- cilitating growth while simultaneously reducing inequality and poverty. The stated objectives of the program are to improve school enrollment, attendance, and educational performance. This is in- tended to be achieved through four channels: 1. A system of educational grants 2. Monetary support for the acquisition of school material 3. Strengthening the supply and quality of education services 4. Cultivation of parental responsibility for, and appreciation of the advantages stem- ming from, their children’s education. These are obviously interrelated in that each is thought to enhance the effectiveness of the others in improving attendance and performance. The system of educational grants is in- tended to encourage regular and continuous attendance, especially for females. This is reflected in two crucial design features (see Table 1.1). First, the size of the grant in- creases through grade levels. Second, at the secondary level, grants are higher for fe- males. The latter is meant to address the cul- tural gender bias against female social par- ticipation as well as being an attempt to internalize education externalities that ac- crue to other families after the marriage of women. The level of the grants was set with the aim of compensating for the opportunity cost of children’s school attendance. The program tries to maintain the real value of the cash benefits stable over time. The nominal value of the educational cash benefits and the cash benefit granted for food consumption is adjusted every six months to account for changes in the cost of living. The program design also tries to avoid diluting a household’s incentives for self-help. The total monthly monetary trans- fer (i.e., from education grants and food support) a family can receive is capped (for the period July–December 1999) at 750 pesos (including 125 pesos for food). This may possibly impact on family education decisions, for example, how many and which eligible children to enroll. Also, as stated in PROGRESA documents, in order to avoid adverse fertility incentives, only children over the age of seven years (the standard age of third-year primary students) are eligible for education grants.5 BACKGROUND AND PROGRAM DESCRIPTION 3 5As it is outlined in the model of Chapter 2, as long as families consider the full lifetime costs and benefits of hav- ing an additional child, this feature of the program is unlikely to leave the fertility decisions of families unaffected. The grants are awarded to mothers every two months during the school calendar and all children over the age of 7 years and under the age of 18 years are deemed eligi- ble. To receive the grant parents must enroll their children in school and ensure regular attendance (i.e., students must have a mini- mum attendance rate of 85 percent, both monthly and annually). Failure to fulfill this responsibility will lead to the loss of the benefit, at first temporarily, but eventually permanently. There are two forms that contain regis- tration and attendance information. Benefi- ciaries are provided with a form (E1) at the general assembly that contains a list of the names of eligible children. This has to be taken to the specific school where each child is to be registered and must be signed by a schoolteacher/director to certify enroll- ment. This form is then returned to, and re- tained by, the district level PROGRESA representatives (UAEP) when the first pay- ment is collected. The second form (E2), for maintenance of detailed attendance records, is sent directly to the schools: one form per school with names of registered children taken from the E1 forms returned by benefi- ciaries. Also, valid justification for absences (e.g., sickness) is to be maintained by the school authorities with the cooperation of parents’ associations.6 The amounts for the support of school materials differ according to educational level. For example, for the period of July to December 1999, for primary school stu- dents from beneficiary families, the support consists of 165 pesos, of which 110 pesos are paid at the beginning of the school year and 55 pesos are paid halfway through the 4 CHAPTER 1 6Recent changes now mean that schools will return details only for those who do not meet attendance requirements. Table 1.1 PROGRESA monthly cash transfer schedule (nominal pesos) January–June July–December January–June July–December Grant 1998 1998 1999 1999 Educational grant per child (conditioned on child school enrollment and regular attendance) Primary Third grade 65 70 75 80 Fourth grade 75 80 90 95 Fifth grade 95 100 115 125 Sixth grade 130 135 150 165 Secondary First—male 190 200 220 240 Second—male 200 210 235 250 Third—male 210 220 245 265 First—female 200 210 235 250 Second—female 220 235 260 280 Third—female 240 255 285 305 Grant for school materials per child Primary—September — In-kind — 110 Primary—January 40 — 45 — Secondary—September — 170 — 205 Grant for consumption of food per household (conditioned on attending scheduled visits to health centers) Cash transfer 95 100 115 125 Maximum grant per household 585 625 695 750 Source: Hernandez, Gomez de Leon, and Vasquez (1999). school year (i.e., in January/February 2000), for the replacement of materials, as long as children continue to attend school. For sec- ondary school students, this support in- creases to 205 pesos and is delivered in a single payment, at the beginning of the school year, once pupils have enrolled. Children attending primary schools that are supplied by the state-run Consejo Nacional de Fomento Educativo (CONAFE) suppli- ers (under the Ministry of Education), that is, essentially all schools except those lo- cated in very marginal communities receive school materials directly from their schools rather than a cash transfer. These are deliv- ered at the beginning of the school year and CONAFE informs PROGRESA which schools received the school materials and how much they received. Description of the Health and Nutrition Component The health and nutrition component can be seen as a collection of a number of interre- lated subcomponents, namely: 1. A basic package of primary health care services 2. Nutrition and health education and training for families and communities 3. Improved supply of health services (including annual refresher courses for doctors and nurses) 4. Nutrition supplements for pregnant and lactating mothers and young children. Although the general focus is on improving the health and nutritional status of all house- hold members, special emphasis is placed on the welfare of mothers and children. Some components are more important than others in this regard. Primary Health Care Services The basic approach of PROGRESA is that of preventive health care that enables house- holds to anticipate both the causes and pres- ence of illnesses, with the objective of de- creasing the incidence and duration of these illnesses. This is reflected in the nature of the package of health services provided (see Table 1.2). The most important actions are related to maternal and child health (e.g., pre- and postnatal health care) and family planning services. A crucial ingredient in the program is the emphasis placed on reg- ular visits to health centers and the setting up and monitoring of a schedule of appoint- ments. This includes the setting of appropri- ate health-center timetables that minimize the inconvenience associated with the mak- ing and keeping of appointments. To facili- tate this, on registration at a health clinic beneficiaries are given an appointments booklet containing a specified schedule of appointments for each household member, with particular attention placed on visits by vulnerable members, according to Table 1.3. This information is entered on the S1 form brought to the clinic by the benefici- ary, ensuring that a record of attendance by household members is kept at the clinic. The other part of the form ( formato CRUS) is returned to the beneficiary, who uses it as proof of registration in order to receive cash grants for food. For the period between July and December 1999 the value of the cash grant for food consumption was 125 pesos per month. BACKGROUND AND PROGRAM DESCRIPTION 5 Table 1.2 Composition of the basic health services package 1. Basic sanitation at the family level 2. Family planning 3. Prenatal, childbirth, and puerperal care 4. Supervision of nutrition and children’s growth 5. Vaccinations 6. Prevention and treatment of outbreaks of diarrhea in the home 7. Antiparasite treatment 8. Prevention and treatment of respiratory infections 9. Prevention and control of tuberculosis 10. Prevention and control of high blood pressure and diabetes mellitus 11. Accident prevention and first aid for injuries 12. Community training for health care self-help Beneficiaries are also asked to attend health and nutrition talks (referred to as pláticas) at the clinic. Each clinic7 receives an S2 form from the UAEP every two months that contains the names of benefici- aries as compiled from the CRUS form. The S2 form, which contains only the benefi- ciary’s name with two columns (one for health center visits, another for attendance at pláticas) for registering compliance or noncompliance by the household, must be filled out by a nurse or a doctor at the health unit every two months, certifying whether family members visited the health units as recommended (and presumably scheduled). This form is then submitted to the UAEPs, via the state health authorities (Juridicion Sanitaria), in order to trigger the receipt of the bimonthly food support. In principle, if at least one member did not comply with scheduled visits then the household is con- sidered not to have complied and thus will not receive food support. However, since adults are asked to comply with only one visit per year, if the appointment date is changed in advance, the health center will focus only on the compliance of women and children. Very often, though, adult members complete their required visit at the time of registration. Also, since a household may visit a clinic other than the one at which it is registered, the UAEPs require information from more than one clinic in order to regis- ter compliance correctly. This information is entered onto a computer and a computer- ized file sent to CONPROGRESA. Nutrition and Health Education An underlying assumption in PROGRESA is that effective health care requires active community participation and a culture of preventive care. To empower individuals and communities to take control over their own health, beneficiaries are required to at- tend nutrition and health education lectures (pláticas). Up to 25 themes are discussed in the lectures, including nutrition, hygiene, infectious diseases, immunization, family planning, and detection and prevention of chronic diseases. Because mothers are the primary caretakers, the pláticas are directed mainly to them, but other members of bene- ficiary families as well as non-beneficiaries are invited to attend. Participants are trained in various aspects of health and nutrition, with a special emphasis on preventive health care; more specifically they are taught about: (1) ways to prevent and reduce 6 CHAPTER 1 7Regarding mobile clinics (unidad mobiles) that already existed in some localities, PROGRESA reached agree- ment with another program (Programas de Ampliacion de Cobertura) on a new frequency of visits to beneficiary localities in order to facilitate the expected increase in demand. Table 1.3 Annual frequency of health care visits required by PROGRESA Age group Frequency of check-ups Children Younger than 4 months Three check-ups: 7 and 28 days, and 2 months 4 months to 24 months Eight check-ups: 4, 6, 9, 12, 15, 18, 21, and 24 months, with one additional monthly weight and height check-up 2–4 years Three check-ups a year: one every 4 months 5–16 years Two check-ups a year: one every 6 months Women Pregnant Five check-ups: prenatal period During puerperium and lactation Two check-ups: in immediate puerperium and one during lactation Adults and youths 17–60 years One check-up per year Over 60 years One check-up per year health risks (e.g., through prenatal care, early detection of malnutrition, childhood immunizations, safe food and water treat- ment); (2) how to recognize signs or symp- toms of sickness; and (3) how to follow appropriate primary-care procedures (e.g., treatment of diarrhea by means of oral rehydration). Participants are also trained in the use of the nutritional supplements provided by the program, as well as in optimal breastfeeding and complementary feeding of young children. Efforts are also made to broaden the information for adolescents and young people, particularly women, to favor the adoption of appropriate behaviors to protect their health from an early age. Supply of Health Services All public-sector health institutions are to provide the package of basic health care services. To facilitate this, especially in the face of anticipated increased demand, re- sources will be devoted to strengthening the supply of health services as follows: 1. Ensuring adequate supply of equipment to units 2. Encouraging staff working in remote rural areas to remain there on a long- term basis 3. Ensuring that health care units have the necessary medicines and materials (including educational health materials to distribute to families) 4. Providing extra training to improve both the quality of the medical attention and the operational dimensions of the service. These resources are deemed necessary if the public health sector is to meet the additional demands placed on it by the program and provide an efficient and high-quality ser- vice. Although the greatest efforts made by the institutions involved will concentrate on primary care, mechanisms will also be es- tablished for the timely detection and refer- ral (free of charge) of the beneficiaries who need attention in units at the second and third levels of health care. Nutritional Supplements Special attention is given to the prevention of malnutrition in infants and small chil- dren, which is a crucial determinant of their future development. Therefore, an addi- tional component of the program is the pro- vision of food (nutritional) supplements to pregnant and lactating women and to chil- dren between the ages of four months and two years. These supplements will also be given to children between two and five years of age if any signs of malnutrition are detected or to non-PROGRESA households under similar circumstances. Two different supplements were formu- lated specifically for the program: one for pregnant or lactating women and the other one for young children. Both supplements contain whole dry milk, sugar, maltodex- trin, vitamins, minerals, and artificial fla- vors and colors, but their specific macro- and micronutrient content is adapted to meet the specific nutritional needs of moth- ers and children, respectively. The supple- ments are distributed in 240-gram packages and are ready to eat after they are rehy- drated. The child supplement produces a type of pap and is available in banana, vanilla, and chocolate flavors. A 40-gram daily ration (of dry product) supplies 194 kilocalories, 5.8 grams of protein, and ap- proximately one recommended daily al- lowance (RDA) of selected micronutrients (see Table 1.4). The supplement for women is intended to be consumed as a beverage after rehydration, and is available in banana, vanilla, or natural flavor. The daily ration is 52 grams and provides 250 kilocalories of energy, 12–15 grams of protein, and se- lected vitamins and minerals.8 BACKGROUND AND PROGRAM DESCRIPTION 7 8A complete description of the design, formulation, and composition of the supplement is available in Rosado et al. (2000) and Rivera et al. (2000). The supplements are prepared at one production plant devoted solely to this task and then distributed to health centers through Distribuidora Comercial CONA- SUPO (Compania Nacional de Subsisten- cias Populares) (DICONSA), which is an operational arm of the Ministry of Social Development (Secretaria de Desarrollo So- cial [SEDESOL]) and also the largest dis- tributor of food in rural areas. There are about 18,000 DICONSA stores in rural areas. The supplements have a long shelf- life of about one year. Mothers visit the clinic at least once a month (more if they are pregnant or have small children) and are expected to pick up a one-month supply of the supplement for each targeted household member. Appropri- ate use of the supplements and other con- cepts of optimal child feeding and feeding during pregnancy and lactation are rein- forced during the nutrition and health pláti- cas provided in the clinics. PROGRESA and Benefits from Other Programs One additional requirement of the PRO- GRESA program is that households benefit- ing from PROGRESA are supposed to stop receiving benefits from other preexisting programs. For example, according to the operational guidelines of PROGRESA, households receiving PROGRESA benefits should not be receiving other similar bene- fits from programs such as Niños de Soli- daridad, Abasto Social de Leche, de Tortilla, and the National Institute of Indigenous People (Insituto Nacional Indigenista [INI]). This requirement of the PROGRESA program represents the short-run objective of the new poverty alleviation strategy of the Mexican government to minimize dupli- cation of benefits to poor families. A longer run objective is to absorb the variety of poverty alleviation programs within one program such as PROGRESA that repre- sents an integrated approach to poverty alleviation. Before the establishment of PROGRESA, previous government inter- ventions in the areas of education, health, and nutrition in the rural sector of the coun- try consisted of many programs each inter- vening separately in health, education, or nutrition with little prior coordination or consideration of the potential synergies that could result from a better coordinated and simultaneous intervention. Size of Monetary Transfers Received by PROGRESA Beneficiary Households Figure 1.1, based on the administrative records of PROGRESA containing the payments sent out to beneficiary families, reveals that there is a substantial variation in the average cash transfer received per month by beneficiary families.9 For exam- ple, the average cash transfer paid out to families in December 1998, July 1999, and December 1999 were between 400 and 500 pesos, amounts that are considerably higher than those paid out in most other months. In the initial months of program implementa- tion, there were considerable delays in the 8 CHAPTER 1 9The sample used is the sample of beneficiary households in the 506 localities used for the evaluation of PROGRESA. Table 1.4 Micronutrients contained in the food supplements Pregnant and lactating women Children Iron Iron Zinc Zinc Vitamin B12 Vitamin A Vitamin C Vitamin C Vitamin E Vitamin E Folic acid Riboflavin Iodine Vitamin B12 Folic acid processing of the forms necessary for pay- ment authorization. The unusually high payments made during the months of De- cember and July are a consequence of PRO- GRESA’s efforts to catch up with the distri- bution of payments owed to the beneficiary families. Figure 1.1 also reveals that the first monetary benefits associated with participa- tion in PROGRESA started in May 1998, covering, in principle, the first two months of participation in the program (i.e., March and April 1998). However, the fact that the first payments that were sent out to some households in May 1998 exceeded the max- imum bimonthly amount suggests that some households were incorporated before March 1998 (e.g., in January 1998).10 Taking into consideration these factors, it was deter- mined that it would be more appropriate to derive the estimate of the average cash transfer received based on the 12-month in- terval between November 1998 and October 1999. Actual average payments, in total and by component, received over the 12-month pe- riod between November 1998 and October 1999, along with data on household con- sumption averaged across all three rounds, are reported in Table 1.5. The average monthly transfers are around 197 pesos per beneficiary household per month (expressed in November 1998 pesos). The calculation of this average includes households that did not receive any benefits because of non- adherence to the conditions of the program, or delays in the verification of the require- ments of the program or in the delivery of the monetary benefits. These transfers are 19.5 percent of the mean value of consump- tion of poor households in control localities. On average, households receive 99 pesos for BACKGROUND AND PROGRAM DESCRIPTION 9 10There is no record of the specific date that a household was incorporated into the program. Figure 1.1 Average cash transfer paid out by PROGRESA by month 10 CHAPTER 1 Ta bl e 1. 5 PR OG RE SA tr an sf er s to b en ef ic ia ry h ou se ho ld s fro m N ov em be r 1 99 8 to O ct ob er 1 99 9 (p es os ) B en ef ic ia ry h ou se ho ld s P oo r ho us eh ol ds r es id in g in c on tr ol lo ca lit ie s To ta l v al ue A ve ra ge T ra ns fe rs of A ve ra ge A ve ra ge A ve ra ge m on th ly To ta l as a co ns um pt io n m on th ly m on th ly m on th ly sc ho ol ex pe nd it ur es pe rc en ta ge o f H ou se ho ld (f oo d) tr an sf er s al im en to be ca ut ili ti es H ou se ho ld (f oo d) no n- be ne fi ci ar ie s R ec ip ie nt si ze [n on -f oo d] re ce iv ed tr an sf er tr an sf er tr an sf er si ze [n on -f oo d] ex pe nd it ur es A ll po or h ou se ho ld s 5. 81 11 90 19 7 99 91 8 5. 47 10 39 19 .5 4% (9 47 ) (8 06 ) [2 42 ] [2 33 ] H ou se ho ld s w ith p re -s ch oo l- ag ed c hi ld re n 6. 58 12 89 20 2 10 1 93 8 6. 41 10 92 18 .7 % H ou se ho ld s w ith s ch oo l- ag ed c hi ld re n 6. 59 13 11 23 9 10 1 12 8 11 6. 40 11 55 20 .9 % H ou se ho ld s w ith h ea ds a ge d 60 o r ol de r 4. 35 93 6 13 8 93 41 3 4. 23 88 0 16 .5 % So ur ce : C al cu la tio ns b as ed o n tr an sf er d at a pr ov id ed b y PR O G R E SA a ve ra ge d ac ro ss t he 1 2- m on th p er io d be tw ee n N ov em be r 19 98 a nd O ct ob er 1 99 9 (d ef la te d to N ov em be r 19 98 pr ic es ). C on su m pt io n an d fa m ily s iz e av er ag ed a cr os s th e th re e ro un ds o f th e E N C E L s ur ve ys in N ov em be r 19 98 , J un e 19 99 , a nd N ov em be r 19 99 . food support (alimento), and 91 pesos for the educational grant (beca). The alimento accounts for 68 percent of the transfers re- ceived by households headed by individuals 60 years or older, a finding not surprising, given that such households will tend to have fewer children of school age. Scope of Evaluation The structure of the benefits and require- ments of the program naturally pose some limitations on the kinds of questions that the evaluation can and cannot address. First, the evaluation of PROGRESA, as well as of any other social program, requires a clear defi- nition of its objectives. Clearly specified ob- jectives provide a benchmark against which the performance of the program can be eval- uated. PROGRESA has multiple and inter- linked objectives. At the risk of oversimpli- fying, the objectives of PROGRESA are to alleviate poverty by inducing households through conditional cash transfers to invest in their human capital, such as health, edu- cation, and nutrition.11 Clearly, the main ob- jectives of the program are long-run goals that can be evaluated only over the lifetimes of program participants. The PROGRESA evaluation data are limited to only two years of observations since the start of the program. This implies that the evaluation results presented herein can provide little information about the long-term conse- quences of the program on the human capi- tal and lifetime welfare of beneficiaries. The evaluation of PROGRESA conducted by IFPRI is based on more short-term indica- tors of program impact on human capital, such as whether children from beneficiary households are more likely to enroll or re- main in school or exhibit higher attendance rates and improved scores in educational achievement examinations; whether benefi- ciaries make more frequent use of the health services provided by the program; whether morbidity among beneficiaries decreases; whether food consumption and nutrition at the household level increases; and whether the intervention, especially on the nutri- tional side, has any measurable impact on the nutritional status of children. In addi- tion, given that this is certainly an implicit objective of PROGRESA, IFPRI’s evalua- tion includes the potential impact of the cash transfer component of the program on short-run poverty measures and household welfare. Second, it is important to note that the educational and health services of the pro- gram as well as the nutritional supplement and pláticas are all provided as a package. This feature of the program makes it impos- sible to evaluate the impact of individual program components (e.g., on the impact of the health component of the program on school attendance) or shed any light on pro- gram design (e.g., what if the cash transfers were awarded to fathers instead of mothers). It is certainly possible that households can choose to comply with some of the require- ments of the program such as visiting health centers and not with others, such as en- rolling their children of eligible age into school. Although selective take-up of spe- cific program components is a real possibil- ity, this is an issue not directly addressed in this evaluation but left for analyses of the program in the future. Lastly, although PROGRESA is pri- marily a demand-side program, meaning that its main objective is to induce households (through cash transfers and conditions asso- ciated with the receipt of these cash trans- fers) to make more intensive use of the ex- isting educational and health facilities, it is important to keep in mind that it is also ac- companied by complementary efforts and resources directed at the supply and quality of the educational and health services. Thus BACKGROUND AND PROGRAM DESCRIPTION 11 11See Skoufias, Davis, and Behrman (1999a,b) for a more detailed presentation of the stated objectives of the PROGRESA program. although the program does not aim to in- crease the quantity of educational and health facilities (such as building new schools and health centers), it does try to an- ticipate and ease potential capacity con- straints that might arise as a result of the more intensive use of the existing facilities. Since these increased resources related to the quality of services are part of the overall PROGRESA benefit package provided, the evaluation of the program can provide little direct evidence on whether a demand-side intervention is more effective (in terms of impact and/or in terms of cost) relative to a supply-side intervention. Chapter 2 of this synthesis report con- tains an economic framework that is useful in understanding the potential impacts of the program. Chapter 3 presents the experi- mental design and the information sources used in the evaluation of PROGRESA. Chapter 4 discusses the evaluation of PRO- GRESA’s targeting and its impact on poverty. Chapter 5 summarizes the econo- metric methods used to evaluate the impact of the program, while Chapter 6 contains a summary of the quantitative and qualitative results of the evaluation of PROGRESA along with the cost analysis of the program. Chapter 7 contains a summary of the policy considerations derived from the evaluation of the program. Readers seeking a more de- tailed description of the research, rationale, and methods may consult the original IFPRI reports that are contained in the CD en- closed with this publication. 12 CHAPTER 1 C H A P T E R 2 PROGRESA Seen through an Economic Lens The major component of IFPRI’s evaluation of PROGRESA focuses on the identifica- tion of the impact of the program (i.e., reductions in poverty levels, increased school enrollment and attendance, increased use of health services for preventive care, and im- proved nutritional status). Knowledge of program impacts is an essential component of any economic evaluation. However, in isolation impact evaluation provides limited guidance for policy. For this reason, an analysis of the costs and the cost effectiveness of the program is also carried out. A number of policy instruments could be employed to generate a given impact, and these may differ substantially in terms of cost. Cost-effectiveness analysis quantifies the costs associated with bringing about a given impact. This aspect of policy choice is particu- larly important when budget allocations are tight. In general, a complete economic evaluation of a program of the nature of PROGRESA re- quires not only the identification of the impacts of the program, and the costs of bringing about these impacts, but also a comparison of these two key factors in order to determine the overall welfare impact of the program and how effectively the program achieves these welfare impacts relative to alternative policy instruments. This immense task typically requires the measure- ment of the benefits associated with higher investments in human capital. Assigning a mone- tary value to the increased nutrition, health, and education of a child over his or her lifetime as a result of the social program requires a series of assumptions that stretch the limits of credi- bility. Nevertheless, in some instances, assumptions of this nature are made in order to provide readers and policymakers with a rough quantitative estimate of the benefits of the program. With these caveats in mind, the first part of this chapter outlines the economic framework that summarizes some of the key determinants of household investment in human capital and the ways in which participation in PROGRESA may influence these decisions. In very simple terms, households have preferences that are summarized by a welfare function; a set of con- straints, such as expenditures cannot exceed income; and a set of variables, some of which are under the control of the agent (endogenous or choice variables) and some are taken as given (exogenous variables or parameters). The main objective of a household is to determine the values for the variables that are under its control so as to get the maximum level of welfare as possible while at the same time satisfying the constraints faced. The key feature of this eco- nomic framework is that a household will determine all its choice variables so that the ratio of the marginal benefit (MB) to the marginal cost (MC) associated with a small change in each of its choice variable is equated across all choice variables. In the remainder of the chapter, the main insights derived from this economic framework about the direct as well as indirect impacts of the program, the nature and the size of these im- pacts, as well as some of the factors that could limit the impact of the program are discussed. 13 An Economic Model of Human Capital Investment within Households The design of the PROGRESA program and the structure of its cash benefits and re- quirements suggest that the program is well aware of the direct costs involved in induc- ing households to invest in human capital. For example, the size of the educational grant varies with child gender and age and is based on the labor income children con- tribute to households. In addition, the fact that the educational benefits are given for children older than seven years of age sug- gests that the design of the program is also cognizant of the possible indirect effects of the program on fertility. This section presents a model of house- hold decision making that highlights the various costs and benefits associated with the decision to invest in the human capital of children. The model is sufficiently flexible to embody the production of human capital by heterogeneous households (Rosenzweig and Schultz 1983; Rosenzweig 1988), the role of the mother’s time (Willis 1974), the interaction between child quantity and qual- ity in the household budget constraint (Becker 1981), the economic value of chil- dren (Rosenzweig and Evenson 1977), and the biology of reproduction (Rosenzweig and Schultz 1983) emphasized in prior stud- ies formulating models of the household. To simplify the presentation, it is as- sumed that households have full informa- tion and collapse all the decisions of the household made early in life and the out- comes of these choices in the adult life of children into one period. Fertility is initially treated as exogenous. Later the model is amended to allow households to make deci- sions about the number of children they have and considers the possible interaction effects of PROGRESA with fertility. The model is also a unitary model, which means that it treats the household as if it were max- imizing a single welfare function without specifying exactly whether this welfare function reflects the preferences of the adult male or the mother in the household. Cleary, most of these assumptions may be questioned on the grounds that they im- pose some strong or unrealistic restrictions on household behavior. For example, the collapsing of the life cycle of the household into one period may be less acceptable for poor rural economies characterized by im- perfect credit markets, liquidity constraints, and limited possibilities of ensuring house- hold consumption (Jacoby and Skoufias 1997, 1998). In addition, the assumption of a unitary household may be subject to criti- cism as attested by the amount of theoretical and empirical work that has been conducted on the alternative model of collective deci- sion making within families (e.g., Haddad, Hoddinott, and Alderman 1997). Although it is important to acknowledge the limitations of this model, it is also quite instructive to present it as a means of obtain- ing a better understanding of the pathways through which PROGRESA might influence household behavior and its investments on the human capital of children. For the purposes of keeping the model simple, the term human capital will be used to summarize the investments of families in both education and health. One essential feature of the model is that human capital (H) per child is produced by the household using as inputs the time of family members and other goods and services purchased from the market.12 The function describing the effects of changes in household re- sources on the level of human capital in- vested in each child is given by 14 CHAPTER 2 12In reality, since families produce more than one form of human capital simultaneously, there may be some im- portant feedbacks or synergies involved in the production of education and health. The health status of a child, for example, may be an important factor in the child’s school attendance rate. In order to keep the model simple, these types of synergies are left out of the model but are discussed in more detail later. H = h(tc H, tm H, X; Z, µ, K). (1) The first partial derivatives for the first three arguments of the human capital production function are assumed to be positive (i.e., h1, h2, h3 > 0). These restrictions on derivatives of the production function are equivalent to assuming that as children or their mothers devote more time to schooling the stock of human capital embodied in children in- creases. Here, three important human capi- tal inputs are highlighted: the time of the child tc H (in school, medical care), the time of the mother tm H, and purchased goods and services X (e.g., books, medical care). The human capital production function, equa- tion (1), also contains the terms Z, µ, and K. The term Z summarizes observable child characteristics such as gender or the birth order, which also directly but exogenously influence H. The term µ captures, for exam- ple, the influence of biological factors, pos- sibly genetically transmitted, such as child ability or health endowment, which also di- rectly but exogenously influence H. Typi- cally, the term µ can be observed by the par- ents of the child but is unobservable to outsiders. The third term, K, reflects the role of parental education; community charac- teristics such as distance from the market, health, or educational center; environmental factors; and the general availability of knowledge and information about the pro- duction of human capital. It is possible that some of the components of K may act as substitutes or complements for each other. For example, parental education may be a substitute for the lack of information avail- able about sanitary practices. Thus both the human capital “endowment” and increased access to relevant information about human capital production may influence household decisions. For example, increased aware- ness about sanitation, proper cooking meth- ods that retain the nutrients in food, and other health maintenance practices can af- fect the productivity of the other inputs. The income of an adult child is assumed to be determined by the stock of human cap- ital accumulated through parental invest- ments. Thus child earnings when he or she becomes an adult denoted by E are E = αµ + βH = αµ + βh(tc H, tm H, X; Z, µ, K), (2) where α is the market return to the genetic endowment of an individual and β is the market rental rate on accumulated human capital. The budget constraint incorporates the possibility that children contribute income to the household when not engaged in human capital accumulation (e.g., in school) and parents receive some fraction θ of the earnings of “grown” children. Specif- ically, the budget constraint of the house- holds is V + Wc (Ω – Tc H)N + Wm(Ω – Ntm H) + θNE = NpxX + Y, (3) where N denotes the number of children in the household, V is non-employment sources of income including the labor in- come of adult men in the household, Wc is wage rate of children, Wm is the wage rate of the mother, Ω is time available, px is the price of X, and Y is household consumption (assumed to be the numeraire) excluding the purchased goods and services for human capital accumulation.13 Finally, parents are assumed to “care about” the number and adult earnings of their children, and the level of household consumption.14 These parental preferences can be summarized by the parental welfare function, PROGRESA SEEN THROUGH AN ECONOMIC LENS 15 13Note that the health of the family members may also be modeled as increasing the amount of the time endow- ment of the family. U = U(E,Y), (4) which is assumed to possess the usual neo- classical properties.15 Assuming that parents maximize (4) subject to (1)–(3) by choosing the levels of X, Y and by allocating parental (tm H ) and child time (tc H) across activities, the first-order nec- essary conditions from the optimization problem of the household for each of its con- trol variables are (in addition to the budget constraint described by equation [3]): UE Wc MRSEY = ––– = N{––– – θ} = MCt c H . (5) UY βh1 UE Wm MRSEY = ––– = N{––– – θ} = MCt m H . (6) UY βh2 UE PxMRSEY = ––– = N{––– – θ} = MCx . (7) UY βh3 Expressions (5), (6), and (7) highlight the fact that at the optimum households equate the marginal rate of substitution between adult children’s earnings and house- hold consumption (denoted by the ratio of the partial derivatives of the utility func- tion with respect to E and Y ) with the marginal cost (MC) or “shadow price” of investing in the human capital of a child. In addition, the combination of these three equations implies that households will allocate child time (tc H), parental (tm H ) time, and market resources (X) so as to equalize the marginal costs associated with each activity and resource (i.e., MCt c H = MCt m H = MCX). For example, expression (5) implies that the marginal cost of children’s time in human capital production depends posi- tively on Wc, the wage rate children could earn (opportunity cost of time in school), and negatively on the marginal increases in earnings associated with a unit increase in school time. Moreover, with all else equal for households with a larger number of children (higher N), the marginal cost of investing in child human capital is higher. Along similar lines, the MC of the time a mother allocates to human capital produc- tion depends on the wage rate of the mother and the marginal productivity of her time in the production of human capital. In combination, expressions (5) and (6) imply that at the optimum the household will al- locate the time children and mothers spend in human capital production so as to equal- ize the marginal costs associated with these two activities. Changes in non-employment income V alone leave the shadow prices of the re- sources unchanged since V does not enter directly into any of the expressions (5)–(7). Provided that E and Y are “normal” com- modities, increases in V result in “pure in- come effects” that increase human capital and consumption. In contrast, changes in any of the factors that affect the marginal cost of time and goods used in producing human capital can trigger substitutions among the resources used in human capital production as the household minimizes its production costs and maximizes its welfare by using more of the input whose shadow price decreased and less of the input whose shadow price increased.16 16 CHAPTER 2 14In this specification of parental preferences, parents value child human capital only by its effect on the adult earnings of children. Another feasible specification is that parents care about the stock of their children’s human capital directly (e.g., parents derive direct pleasure from having healthier or more educated children). 15Meaning that it has positive partial derivatives for each of its arguments and that it is strictly concave. 16See Behrman and Knowles (1999) for a similar approach to the determination of human investments within families. The Conditionality of Cash Transfers At the risk of oversimplifying, one of the key features of PROGRESA is that the cash transfers paid by the program are condi- tioned on school attendance and visits to health centers. Simple economic theory sug- gests that a household is generally better off receiving an unconditional cash transfer than a conditional cash transfer. The reason for this lies in the fact that conditionalities in- duce households to make choices that are different from those that they would make if they were given the cash transfer uncondi- tionally and allowed to use it as they pleased. One possible justification for the imposition of these requirements may be that significant market failures in rural economies tend to make poor households invest less in educa- tion or in health than would be best in the so- ciety’s point of view.17 In the presence of market failures and other externalities, the conditionality of cash transfer schemes can be considered as an effective means of im- proving efficiency. Requiring that benefici- ary households fulfill some minimum re- quirement in school attendance and visits to health centers may result in a gain in social welfare that is greater than that obtained from an unconditional cash transfer. Based on the model outlined in the pre- vious section, it is instructive to follow through some of the pathways in which this key characteristic of PROGRESA can im- pact on the investments of families in the human capital of their children. Such an ex- ercise, at a minimum, provides useful guid- ance about the cases or types of households in which impact can be expected. Consider, first, the cash transfers by themselves, ignoring for the moment that these transfers are awarded conditionally. In this very simple example, participation in the program increases the term V in equa- tion (3) while leaving the determinants of the marginal costs unaffected. Then the cash transfers of PROGRESA act as an income effect that tends to increase the human cap- ital invested in children. Next consider the requirements associ- ated with the program. Participation in and compliance with the conditions of PROGRESA are likely to result in changes in the shadow price or marginal cost of in- vestment in human capital.18 For example, consider a household with a child enrolled in school and with an attendance rate less than the 85 percent rate required by PROGRESA. Assuming full compliance with the requirements of the program, the changes in the amount of time the child and the mother devote to schooling, and in the amount of the school supplies X (such as textbooks, pencils, and paper) made avail- able by the program are likely to change the marginal costs or shadow prices of the household. Specifically, consider the impact of the program on the MC of tc H (see equa- tion [5]). Even though the extra time the child devotes to schooling has a cost in terms of the lost child wage Wc, what mat- ters to the household is the ratio of child wage to the marginal increase in earnings given by the term βh1(tc H, tm H, X; Z, µ, K) that enters in the denominator. Thus the impact of PROGRESA on the MC of tc H is deter- mined by how the marginal product of the time of a child in human capital is affected by various components and requirements of the program (i.e., the signs of the second own and cross-partial derivatives (i.e., h11, h12, h13). The higher amount of tc H required PROGRESA SEEN THROUGH AN ECONOMIC LENS 17 17See Das, Do, and Ozler (2004) for an interesting discussion of the equity and efficiency trade-offs involved in conditional cash transfer programs. 18In principle, an eligible household’s decision of whether to participate in the program or not can be modeled as comparing its maximum utility level outside the program with the utility level associated with participating in the program, adhering to all the conditions of the program imposed on the time allocation of children and mothers and receiving the cash transfers provided by the program. by the program is likely to decrease h1in ex- pression (5) given the diminishing marginal productivity of own time in human capital production (i.e., h11 < 0). However, this neg- ative effect on h1is likely to be counteracted by the enhanced productivity of the child’s time resulting from the increased time spent by the mother in producing child education and the larger number of textbooks avail- able (i.e., h12 > 0, h13 > 0).19 Whether the marginal cost of time de- creases or increases depends on how strong these effects are in relation to each other. Since most of the program components work to increase the marginal product of time in human capital production it is safe to say that the program is likely to decrease the MC of time and thus result in further reallo- cation of inputs within the household. In other words, the requirements of the pro- gram tend to generate additional shadow price effects that lead to further substitution and income effects that have the potential of reinforcing the income effect resulting from the receipt of monetary benefits. Figure 2.1 illustrates some of these ef- fects graphically. The vertical axis of the graph depicts the quantity of other goods available for consumption in the household, whereas the horizontal axis measures the time a child devotes to schooling (or in human capital investment). Full or 100 per- cent attendance rate occurs when the child devotes all non-leisure time in school atten- dance (including school-related homework) (i.e., S = T where T denotes the amount of time available after excluding leisure time which for simplicity is assumed to be fixed). The vertical line of height V at the value of S = T denotes the maximum amount of other goods available in the household when a child devotes all of his or her time to schooling and not working. When a child divides his or her time between work and schooling then the line TVA describes the opportunity set of the household. The nega- tive slope of this line is given by the real market wage W for child labor, which de- scribes the tradeoff in the market between the consumption of other goods and school- ing (or work).20 By devoting one hour less in schooling and working one extra hour in market work the household can earn W ad- ditional units of other goods. Let Smin denote the 85 percent atten- dance rate required by the PROGRESA program. Eligibility for the benefits of PROGRESA causes the budget line in the region between points T and Smin to shift up without changing its slope and increases the nonlabor component of income upward to the point V′. To the extent that the house- hold fulfills all the requirements of the program then V′ – V equals the maximum amount of benefits that the household can obtain from the program. In consequence, the feasible budget constraint of an eligible family is now described by the line TV′A′BA that is discontinuous at the point Smin. Of course, differences in family non- earned income and market opportunities may be one important reason why some children are enrolled or not enrolled in school. To keep the exposition simple, we assume that the income opportunities of households are identical and consider the case when we have two different types of households represented by two different in- difference curves. The household denoted by the tangency at point C represents house- holds with a child that has an attendance rate close to 100 percent (S > Smin) and 18 CHAPTER 2 19Note that in the case of health production the pláticas may enhance the marginal productivity of time further (h1K > 0). 20It is assumed that the opportunity cost of child schooling is the fixed market wage for child labor. The as- sumption of a perfectly competitive labor market can be replaced by (or combined with) the assumption that chil- dren work at home producing home-produced commodities that are perfectly substitutable with market-purchased commodities with no additional complications (see Skoufias 1994a). works only a very small fraction of his or her time. The indifference curve that crosses the vertical axis at point A represents house- holds with a child who does not attend school at all (S = 0) and devotes all of his or her free time to market work. Although it does not have to be so, for simplicity, point A is depicted as a tangency point between the indifference curve of the household and the real wage line W. The discontinuity of the budget con- straint of the household, in combination with the assumption of utility maximiza- tion, implies that there is a minimum condi- tional cash transfer that will induce the household to send its child to school. Let B′ denote the point of intersection of the in- difference curve of household A with the vertical line at Smin. Then the vertical differ- ence B′ – B represents the minimum cash transfer that will make household A just indifferent between complying with the 85 percent attendance requirement and keep- ing their child out of school. A conditional cash transfer less than B′ – B is insuffi- cient to induce the household to enroll its child in school. This is because by having its child work, the family gets a higher level of utility compared to sending the child to school. In Figure 2.1, it is implicitly assumed that the size of the conditional cash transfer V′ – V is greater than the minimum amount B′ – B needed to induce household A to en- roll the child in school and comply with the 85 percent attendance requirement. In con- PROGRESA SEEN THROUGH AN ECONOMIC LENS 19 Other goods Schooling Work A W B A� B� C� V� W* V* C V T SSmin Figure 2.1 Effect of conditional cash transfers on children’s school attendance and work Note: A, Initially not attending; C, initially attending full time; T, maximum amount of time available excluding leisure; Smin, program’s required school attendance. sequence, household A finds it to its advan- tage to enroll the child in school. As can be inferred from this figure, participation in the program is likely to affect households dif- ferently depending on their location on the budget line before the administration of the program. Consider household C, for exam- ple. Such a household can represent house- holds with children of primary school age where enrollment rate is close to 95 percent or the households with children of second- ary school age who are regularly attending school even before the administration of the program. Since the conditions are not bind- ing, the program is likely to have only a pure income effect represented in Figure 2.1 by the parallel upward shift in the portion of the budget constraint between points T and Smin.21 For these households the impact of the program may be concentrated at in- creasing the time they devote to schooling such as spending more time studying rather than enrollment.22 For a contrast, consider household A. With the cash transfer conditioned on an 85 percent attendance rate, and with the amount of the cash transfer greater than the mini- mum cash transfer B′ – B such a household will choose to send (enroll) its child to school. This new equilibrium is represented by the point A′. The same household, given the same cash transfer of V′ – V, and without the minimum requirement of an 85 percent attendance rate, might choose an attendance rate that is lower than 85 percent and achieve a higher level of welfare (i.e., would be on a higher indifference curve) than at point A′. One plausible justification for introducing “distortions” on the choices of poor house- holds is the role of significant market fail- ures and externalities that create differences between individual and social welfare. As long as such market failures are prevalent, the social gains from making cash transfers conditional are likely to exceed the sum of the individual welfare losses from the impo- sition of these distortions. Continuing with the discussion of house- hold A, at first sight it would appear that for this household it is very hard to attribute income and substitution effects to the pro- gram since the final equilibrium point A′ is not a tangency point. Yet, one can still apply the familiar concepts of income and substi- tution effects using the analytical frame- work of “linearizing the budget constraint” (discussed in detail in Killingsworth 1983). Linearizing the budget constraint amounts to transforming point A′ into a tangency point by drawing a line tangent to the indif- ference curve at A′ (i.e., finding the shadow wage W*) and finding the corresponding level of non-earned income (or shadow in- come) V* that corresponds to the shadow wage W*. As it becomes apparent, house- hold A’s participation in the program results in both substitution and income effects that tend to reinforce each other. The cash trans- fer component of the program leads to a pure income effect that increases schooling, while the condition that the child devote at least 85 percent of his or her time in school leads to a price effect. Based on standard economic theory the price effect may be further decomposed into a substitution and income effect. At the final equilibrium point A′ the lower shadow wage W* (