Tackling Global Poverty Takes More Than Cash

That’s the conclusion of recent research by the Kellogg School’s Dean Karlan, a professor of economics and finance, and Chris Udry, a professor of economics, who together direct the Global Poverty Research Lab.

Along with multiple collaborators, including the World Bank, Karlan and Udry worked with the government of Niger to conduct a randomized, controlled study that compared the effectiveness of several different social programs for thousands of households in Niger living in extreme poverty. “These are programs attempting to reach the very poorest people in the world,” says Udry.

The researchers were especially interested in understanding how psychosocial constraints, such as a lack of role models or support for business efforts among village peers, might create barriers to seizing economic opportunities. They wanted to know whether including components addressing these challenges in social programs—like group problem-solving sessions and sharing success stories—could improve overall outcomes.

“The literature suggests mental health, aspirations, and hope enable people to benefit from economic interventions and run with opportunities,” Karlan says.

Overall, the results from their study show that government-run programs that take a multifaceted approach to combating poverty yield significant improvements in economic and psychosocial well-being in extremely poor communities.

Importantly, the researchers also found that psychosocial components contribute to the economic impact of these programs and are especially important in improving their cost-effectiveness.

“It’s about working on multiple fronts,” Karlan says. “Not just saying, ‘here’s cash’ or ‘here’s training.’”

A Multifaceted Intervention

Previously, the Niger government established a permanent cash-transfer program and began rolling it out to about 100,000 of the country’s poorest households. The government then collaborated with the World Bank, Innovations for Poverty Action, and a team of professors including Karlan and Udry, to design and assess additional interventions beyond the cash transfers.

They looked specifically at a sample of 4,700 households already in the cash-transfer program. Households were assigned randomly to one of four groups. All households in the study received the monthly cash transfers, but three of the groups also received an extra package of benefits that included several new components intended to improve women’s income-earning potential. These included entrepreneurship training and a group-based savings fund in which participants could buy shares. In addition, each of these three groups received something unique: (1) a lump-sum cash grant beyond the monthly transfers, (2) psychosocial interventions, or (3) both the cash grant and psychosocial interventions.

To create the psychosocial intervention, the team worked with psychologists. Some of these interventions were geared toward problem-solving, interpersonal communication, and goal-setting.

For instance, households took part in week-long life-skills training with role-playing, games, and case studies. Other components of the psychosocial intervention were aimed at shifting women’s cultural norms about work. For example, household members were invited to view a short film that illuminated people in extremely poor environments—like them—who had improved their economic situation significantly. As Karlan put it, “We wanted to establish role models and show what they did to prosper. The idea was to build hope and aspirations to support their motivation for income-generating activity.”

Then researchers measured economic, psychosocial, and empowerment outcomes, such as participants’ perception of control over decision-making and earnings, at baseline and 6 and 18 months post-intervention. They also collected data on the cost of these interventions to gauge benefit-to-cost ratios.

High Impact, Low Cost

The study yielded promising results.

Households that received a benefits package in addition to the monthly cash transfers showed improved outcomes on a number of measures, including improved consumption of daily household items, food security, business revenues, and women-led off-farm business activities and revenue.

Moreover, all three packages had significant impacts on multiple psychosocial outcomes. For example, women reported lower levels of depression symptoms and higher levels of life satisfaction and self-efficacy (the ability to achieve hoped-for results), as well as a heightened sense of social worth and higher future expectations for well-being for themselves and their children.

Six months into the study, households that had received both the cash grant and the psychosocial interventions showed the biggest economic impact, followed by the cash grant alone, and then the psychosocial interventions alone. But differences in impact among these three groups were small overall. And of note, the economic boon to households that had only received the psychosocial intervention continued to grow between 6 and 18 months, suggesting the ongoing value of this intervention.

“I didn’t expect the psychosocial elements to play as important a role as they do,” Udry says. “As an economist, I think about the conditions people face with access to factors of production like capital, labor, and land. So I’m seeing only now how critical these psychological and social features of poverty seem to be.”

The researchers also found that the cash grants had positive psychological impacts on their recipients, while the psychosocial interventions had a positive economic impact. This suggests that these interventions had broad effects beyond their expected mode of influence.

The benefits packages were largely cost-effective, the researchers determined, with total costs ranging from $263 for the package that included the psychosocial intervention to $584 for the one that included both psychosocial and capital interventions. The two packages with psychosocial components drove particularly high benefit-to-cost ratios. “The interventions work as well as giving people a lot of money but with lower cost, so the benefit-to-cost ratio is much higher,” Karlan says.

A Call to Action

The results suggest the effectiveness of both economic and psychosocial pathways to enhancing the welfare of extremely poor households.

The researchers are quick to note that there is no one-size-fits-all intervention: programs must be tailored to the communities they serve. “If you took the exact same program and did it in Ethiopia, it wouldn’t work the same way,” Udry says.

And yet, they argue that an approach that looks beyond just distributing money is likely to be successful in many places. Indeed, the researchers are awaiting results from other countries to continue to build support for their approach of using different, complementary keys to unlock potential and improve welfare.

Above all, they want the most effective interventions possible to make their way to the communities that need them—and at scale.