Rates of Return of Social Protection
The case for non-contributory
social transfers in Cambodia
Franziska Gassmann
Arusha, Tanzania – 17 December 2014
The usual arguments for extending
social protection rely on…
• Human rights
• Empirical evidence on impacts
• Pilot projects
• Affordability studies
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Rationale for investment case
• Additional arguments are needed to move SP up the national
development agendas
–
–
–
–
Demonstrate value for money
Analyze fiscal sustainability
Prove cost-effectiveness, capture multidimensional effects
Compare with alternative investments
• Develop economic argument for social protection
– Costs AND benefits
– Short term AND long term
– Direct AND indirect
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Non-contributory social protection as
economic investment
• Paradigm shift: SP not just as a cost for the economy
– Source of resilience in tough times
– Support for growth and productivity in good times
– Mechanism for social inclusion
• SP and economic growth – transmission channels
–
–
–
–
–
Building and protecting human capital, child wellbeing
Fostering productive investments, protect assets
Reducing liquidity constrains
Enhancing community assets, infrastructure
Stabilizer of aggregate demand, improving social cohesion,
making reforms feasible
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Background
• Cambodia has achieved rapid economic development and
poverty reduction.
• Annual GDP growth of 7.7% on average (1995-2011).
• GNI per capita US$): $830 (2011) (low income country)
• Human Development Index: 0.523 in 2011 (#139)
• NSPS launched at the end of 2011.
• Double objective: economic stability and human development
• Objective of our study:
• Contribute to the evidence on the links between social protection
investments and socio-economic development in Cambodia
• “What are the economic returns of social protection in the mid-and
long term?”
• Supported by UNICEF and Royal Government of Cambodia
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Data and methodology
• Rates of Return: relation between net benefits and
costs
• Data: CSES (2004 and 2009)
• Microsimulation (steps):
• Static (cost-effectiveness): changes on poverty and
inequality (direct distributional effect)
• Returns of human capital (education) at the household level
• Behavioural (income) effects
• School attendance (education)
• Nutrition (health)
• Labour (participation and supply)
• Dynamic: 20 periods
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RoR study Cambodia – Model
Direct (distributional) effects
Social protection
Behavioural
(income)
effects
Education
(school attendance)
Household
consumption
Return
Poverty and
inequality
Human capital
Health
(underweight)
Labour participation
Economic performance
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Labour productivity
Returns to human capital
• An additional year of education is related
with a 4.1% higher wage.
•
Low in international comparison  mainly lowskilled employment with limited productivity
• An additional year of education is related
with a 1.8% higher household consumption
for a poor rural household.
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Behavioral (income) effects
•
•
•
A 10% increase in the level of consumption is
related with a 5.6 percentage points higher
probability to attend lower secondary school for a
poor rural person
10% increase in consumption is related with 0.4
percentage points lower probability of being
underweighted.
A 10% increase in household consumption is
related with a 7.8 percentage points higher
probability of formal work for poor persons
between 18 and 64 years old in rural areas.
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Behavioral (income) effects
Model: 2SLS for all households
Urban
Urban
Rural
Rural
Dependent variable (independent variable)
(non-poor)
(poor)
(non-poor)
(poor)
log of household consumption per capita (maximum level
0.042 ***
0.016 **
0.026 ***
0.018 ***
of education within the household)
(0.005)
(0.007)
(0.003)
(0.002)
Model: Probit model for individuals 6-25 years old
Education level (rural-poor)
Dependent variable (independent variable)
Lower
Upper
Primary
secondary secondary
School attendance (log of household consumption per
0.226 **
0.560 **
0.373
capita)
(0.089)
(0.262)
(0.516)
Model: Probit model for children under 5 years old
National
Rural
Dependent variable (independent variable)
National
(poor)
(poor)
-0.043 *** -0.048
-0.038
Underweight (log of household consumption per capita)
(0.015)
(0.038)
(0.041)
0.026
0.062 **
0.081 ***
Underweight (no toilet facility in the house = 1)
(0.016)
(0.029)
(0.029)
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RoR study Cambodia – Policy
Social
Protection
Instrument
Target Population
Benefit
Transfer
Total Cost
KHR % of KHR % of
billion GDP billion GDP
Poor children 0-6 years
USD 12 per month (60% rural food
Cash transfer old in rural areas, up to
poverty line)
two per household
391
0.9
430
1.0
Social
pension
Poor persons 65+ in
rural areas
139
0.3
153
0.4
Scholarship
Poor children at lower USD 50 per year (20% rural food
secondary in rural areas poverty line)
25
0.1
28
0.1
50
0.1
75
0.2
USD 20 per month (100% rural
food poverty line)
Poor persons 18-64
years old in rural areas,
Public works
USD 2.3 per day
up to 1 per household
(80 days per year)
• Total costs is around 1.6% of GDP (USD 166 million, 2009).
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RoR study Cambodia – Results
Benefit
Average years of education (18-64 years old)
Total household consumption average annual
growth rate (%)
Poverty headcount (%)
Inequality (Gini of consumption)
Cost
Cost (% of GDP)
Scenario
Rate of Return (Absolute benefit on total
Period 5
Period 10
Period 15
Period 20
With social protection
6.52
7.67
9.00
10.40
11.62
Without social protection
6.52
7.65
8.89
10.22
11.41
Benefit (difference)
0.00
0.02
0.11
0.19
0.21
With social protection
1.55
2.54
2.77
2.82
2.71
Without social protection
0.00
2.29
2.65
2.74
2.67
Benefit (difference)
1.55
0.26
0.12
0.07
0.04
With social protection
23.74
20.7
15.6
10.9
7.8
Without social protection
29.71
26.7
19.8
14.7
10.4
Benefit (difference)
-6.0
-6.0
-4.2
-3.8
-2.6
With social protection
0.313
0.314
0.314
0.308
0.302
Without social protection
0.329
0.328
0.327
0.320
0.312
Benefit (difference)
-0.016
-0.014
-0.013
-0.012
-0.010
Policy
Social protection package
RoR
Period 1
Discount rate
2%
3%
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of Governance
household
consumption
/ absolute cost)
(%)
4%
Period 1
1.6
Period 1
Period 5
1.4
Period 5
Period 10
1.2
Period 10
Period 15
0.9
Period 15
Period 20
0.8
Period 20
-11.6
-10.0
-4.1
5.8
14.7
-11.6
-10.1
-4.3
5.0
13.3
-11.6
-10.1
-4.6
4.3
11.9
Results: benefit (human capital)
• Labour force’s median education level
increases faster due to social transfers.
Labour force median education level (schooling)
Years of education
8.8
8.4
8.0
7.6
7.2
6.8
6.4
6.0
Difference (Bs)
0.180
0.160
8.5
0.140
0.120
0.100
0.08
0.080
0.060
0.040
0.020
0.000
6.0
-0.020
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
8.6
Without SPI
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With SPI
Bs (schooling - years)
Results: Benefit (hh consumption)
• Total household consumption grows faster if
SPI are implemented.
Total household consumption average growth rate
Household Consumption average growth rate
3.00
Difference (Bc)
2.71
2.67
2.50
1.78
1.58
1.38
2.00
1.18
1.55
0.98
1.50
0.78
1.00
0.58
0.38
0.50
0.04
0.00
0.18
-0.02
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Without SPI
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With SPI
Bc (hh consumption growth rate)
Results: Benefit (poverty reduction)
• Poverty headcount decreases faster because
of SPI
Head count
Difference (Bp)
Poverty (head count)
-6.0
35.0
29.7
30.0
-5.5
25.5
-5.0
25.0
19.8
20.0 23.7
-4.5
20.7
14.7
15.0
10.4
15.6
10.0
-3.5
10.9
5.0
-4.0
7.8
-3.0
-2.5
0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Without SPI
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With SPI
Bp (poverty head count)
Results
• Total cost of SPI decreases over time.
KHR (billion)
1.6
750
% of GDP
1.6
700
1.5
650 684
600
1.4
550
1.2
500
1.1
450
1.0
1.3
400
0.8
350
300
1
2
3
4
5
6
7
8
0.8
327 0.7
9 10 11 12 13 14 15 16 17 18 19 20
Total cost (KHR billion)
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0.9
Total cost (% of GDP)
Rates of Return – Results
• A basic package of SPI for poor rural individuals in Cambodia
has a RoR of between 12% and 15%, after 20 periods
(years). It becomes positive after 12 periods (years).
15.0
14.7
11.9
10.0
5.0
0.0
-5.0
-10.0
Period
-15.0
1
2
3
4
5
6
7
RoRC (d=2%)
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8
9 10 11 12 13 14 15 16 17 18 19 20
RoRC (d=4%)
RoRC (d=6%)
RoR study Cambodia – Final remarks
• Dynamic microsimulation provides a novel approach to analyse
economic returns of social protection.
• Modelling options depends on data constraints.
• Costs and specific impacts have been estimated. The model can be used to
analyze potential economic returns in the mid- and long- term.
• Any model is always a simplification of real life.
• Effects, benefits and returns may be higher if complementary
policies are also implemented.
• Improving health and education coverage and quality.
• Enhancing sanitation conditions.
• Fostering economic productivity, formal labour market, industrialization,
innovation and technical change.
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RoR study Cambodia – Final remarks
• Additional effects may increase benefits and RoR.
•
•
•
•
Behavioral (non-economic) effects due to SPI design.
Spillover effects and regional multiplier.
Institutional change and social cohesion.
Health status improvements (e.g. nutrition).
• Financing aspects (taxation), administrative issues
(inefficiency) and targeting errors may reduce RoR.
• Specific SPI design (e.g. targeting, conditionality,
payment mechanism) may affect RoR.
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