Publication: Transfers, Diversification and Household Risk Strategies: Can productive safety nets help households manage climatic variability?
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Date
2022-03-30
ISSN
Published
2022-03-30
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Abstract
Despite increasing climatic variability and frequent weather shocks in many
developing countries, there is little evidence on effective policies that help poor
agricultural households manage risk. This paper presents experimental evidence on
a program in rural Nicaragua aimed at improving households’ risk-management
through income diversification. The intervention targeted agricultural households
exposed to weather shocks and combined a one-year conditional cash transfer with
vocational training or a productive investment grant. We identify the relative
impact of each complementary package based on randomized assignment and
analyse how impacts vary by exposure to exogenous drought shocks. The results
show that both complementary interventions provide protection against weather
shocks two years after the programme ended. Households that received the
productive investment grant also had higher average consumption levels. The
complementary interventions facilitated income smoothing and diversification of
economic activities, as such offering better protection from shocks compared to
beneficiaries of the basic conditional cash transfer and control households.
Relaxing capital constraints induced investments in non-agricultural businesses,
while relaxing skills constraints increased wage work and migration in response to
shocks. These results show that combining safety nets with productive
interventions relaxing skill or capital constraints can help households become more
resilient and manage climatic variability.