In recent years, reducing poverty has been a core objective of social policy in Latin America. In2008, the incidence of poverty reached almost a third of the population, of which 13 percent areclassified as extremely poor. Most Latin American countries have invested vast resources inpoverty reduction programs, particularly Conditional Cash Transfer schemes (CCTs), whichhave become a critical element in social policy.The effectiveness of CCTs has been a hotly debated topic. Most social programs in LatinAmerica lack data for comprehensive evaluations to be carried out, but CCTs are an importantexception. Many programs have been designed to have measurable impacts on various outcomes,generating a variety of empirical evidence that has been critical for designing and implementingnew CCTs as well as fine-tuning existing programs. Evaluations cover a range of issues fromaccess to education and health services, consumption patterns, to the impact on poverty,inequality, and labor market participation. Structural models of household behavior as well asempirical modeling of program implementation have been used to study the effectiveness of theconditionality and the size of the cash transfer. Nonetheless, the design of CCTs can be improvedby better understanding households’ behavior in different environments as well as by constantlyrevising program rules such as transfer’s schemes and targeting instruments. CCTs have provedto be an effective form of social assistance, but are not a panacea to eradicate poverty.A careful examination of which factors generate disparities in living standards is crucial todesign poverty reduction interventions. A common feature in many Latin America countries isthe presence of geographic disparities in living standards that persist over time, in spite of growthat the national level. The role of infrastructure and geography vis-à-vis human capital and otherdeterminants of household consumption growth have the potential to explain how aggregateeconomic growth translates into changes in household welfare. Moreover, researchers andpolicymakers alike are aware that the appropriateness of poverty reduction programs includes anin-depth analysis of geographical characteristics to aid the design of effective policyinterventions to reduce poverty. For example, a better understanding of the geographicaldistribution of poverty can help fine-tune existing CCTs. The essays presented contribute to theliterature on analytical work on poverty reduction programs, the effects of these programs onhuman capital accumulation and propagation of poverty, and the geographic determinants ofhousehold consumption.The first two papers analyze Mexico’s Conditional Cash Transfer Oportunidades. Mexico’s CCTis one of the oldest in Latin America and currently reaches 5 million households, one fourth ofthe country’s population. In terms of budget, the program costs about 0.5 percent of the country’sgross domestic product (GPD) and the transfers represent around a fifth of the mean householdconsumption. As in many other CCT, Oportunidades has two main objectives: reduce poverty inthe short run and increase the human capital of children, which weakens the transmission ofpoverty across generations. To reach the second objective, transfers are conditional on householdinvestments in children’s education, health, and nutrition. The first two of papers in thisdissertation proposes analytical tools to fine tune the current design of Oportunidades along twodimensions. First, it analyzes the program current targeting system and proposes an alternativeiiimethodology to select beneficiaries. This is important for program effectiveness (measured as areduction in targeting errors) and fairness, since the program’s objective is to reach the pooresthouseholds that under invest in the human capital of their children. Second, the paper assesseshow a critical aspect of Oportunidades, school enrollment, changes in response to a new schemeof transfers and the corresponding costs in terms of the program’s budget.The first paper proposes a multidimensional targeting instrument that identifies CCTbeneficiaries more efficiently by selecting beneficiaries with deprivations on the dimensions thatare aligned with CCTs objectives. Targeting mechanisms used by CCTs have been generallysuccessful in identifying the income poor, but have fared less well in identifying households thatunder-invest in children’s human capital. CCTs have applied targeting mechanisms based onproxy means test, generally variants of principal component analysis, probabilistic models orordinary least square regression that identify monetary or well-being composite measures.Nonetheless, CCTs have traditionally identified their beneficiaries comparing the welfare metricsagainst a single threshold or cut-off point (or “unidimensionally”). The paper proposes a novelmultidimensional approach to identify program’s beneficiaries that accounts for the multipleobjectives of the CCTs and the multiple deprivations of the household. The proposed targetingmechanism is applied to the Mexican urban program Oportunidades and significantly improvesthe selection of households with children who are most deprived in the dimensions often relevantto CCTs (e.g. poor households with children that are not attending school). A robustenessexercise is carried out using an ex-ante evaluation technique that reinforces the contribution ofthe proposed targeting mechanism.The second paper uses an occupational choice model to ex-ante evaluate the impact of different transfers’ schemes on school enrollment and child labor. This paper assesses the occupational choice model of Bourguignon, Ferreira and Leite (2003) as a well suited technique to simulate the impact of policy changes in traditional CCT programs. This is important because one of the main setbacks of ex-ante evaluations is that the choice of the model can lead to ‘targeted modeling’ indicating that the results might be driven by the features of the model rather than the policy itself. Furthermore, we relax the model’s identifying assumption and simulate alternativetransfer’s schemes with the objective of increasing school attendance. The findings indicate that the model predicts well school attendance and is a valuable technique to analyze ex-ante the impact of policy changes in school enrollment and its subsequent effects on poverty andinequality indicators. One of the counterfactual simulations indicate that eliminating or reducing school subsidies for primary education and increasing transfer for older students is a costeffective way to raise overall school enrollment. Another result indicates that increasing schoolattendance of 16-year-olds to 80 percent or more requires a substantial increase in the transfers. Another key stylized fact in the poverty literature is the existence of poverty traps. From the beginning of the development theory, poverty traps have called the attention of researchers andpolicymakers alike. As defined by Azariadis and Stachurski (2005) “A poverty trap is anyreinforcing mechanism that causes poverty to persist.” At the macro level, the concept of apoverty trap has been used to explain differences observed in per capita income betweencountries and in the case studied in this paper within regions of a country.ivThe third paper sheds light on the spatial distribution of poverty, and the intra-regional dynamicsof income distribution within a country (Ecuador). The paper assesses the importance ofgeographical, physical, and human capital variables in explaining differences in consumptiongrowth in Ecuador— a country characterized by significant geographical and culturalheterogeneity. In particular, the paper uses novel pseudo-panel data techniques to analyze thelink between geographic factors and household welfare. The evidence indicates that geographicalvariables are important determinants of the household consumption growth after accounting forhousehold characteristics such as education and labor market experience. Furthermore, theresults indicate that individuals with similar characteristics experience increments in growthlevels differently, depending on where they reside. Altogether, the results indicate that in other toreduce poverty, efficient and equitable government policies should take into account the role ofgeography and geographical diversity, including the regional distribution and provision of publicgoods.
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