Conditional Cash Transfers, Credit, Remittances, Shocks, and Education:

This work estimates the impact on school enrollment of a Nicaraguan conditional cash transfer program, Red de Protección Social (RPS). RPS is one of a growing number of these programs (e.g. Progresa, Bolsa Escola, and PRAF) that pays households regular cash transfers on the condition that their children attend school and all household members visit health clinics and seminars. A household model highlighting the decision between child labor and education is presented to estimate the impact of cash transfers based upon key structural variables: wealth, credit access, remittances, and exposure to weather shocks (specifically droughts). The results of the model lead to the paper’s central hypothesis: conditional cash transfers will have the greatest impact on credit constrained households hit by negative economic shocks. This work contributes to the literature by examining empirically the effect of credit constraints and negative economic shocks on the impacts of a cash transfer program. A difference-in-difference estimator is used to calculate the impact of RPS depending on key structural variables within the household. Consistent with a previous study (Maluccio and Flores, 2004) the results show that RPS helped to substantially increase school enrollment. The results are also consistent with the central hypothesis: that credit constrained households experiencing a negative economic shock are the most impacted by RPS. Additionally, as part of the empirical analysis, propensity score matching is utilized to test the validity of the assumptions of randomization in the RPS data, that justify the use of difference-in-difference estimation; the use of difference-in-difference estimation is supported by the results of the matching estimator.