Estimation of Rates of Return on Social Protection Instruments: Making the Investment case for Non-Contributory Social Transfers in Cambodia

Mideros Mora, Andres, Gassmann, Franziska and Mohnen, Pierre (2012). Estimation of Rates of Return on Social Protection Instruments: Making the Investment case for Non-Contributory Social Transfers in Cambodia. UNU-MERIT.

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  • Sub-type Research report
    Author Mideros Mora, Andres
    Gassmann, Franziska
    Mohnen, Pierre
    Title Estimation of Rates of Return on Social Protection Instruments: Making the Investment case for Non-Contributory Social Transfers in Cambodia
    Publication Date 2012-10-01
    Place of Publication Maastricht
    Publisher UNU-MERIT
    Pages 138
    Language eng
    Abstract Cambodia has achieved rapid economic development and poverty reduction over the last years. Total GDP grew between 1993 and 2010 at an average rate of 7.3% per year. Poverty has decreased from 47% to 30.1% between 1993 and 2007. However, most of its population is still living in vulnerable conditions due to malnutrition, lack of basic infrastructure, low quality of health care, low levels of human capital, vulnerable employment and the risk of natural disasters. The share of the poorest quintile in national consumption decreased from 8.3% in 1993 to 6.6% in 2007. The Royal Government of Cambodia launched in 2011 the National Social Protection Strategy for the Poor and Vulnerable (NSPS) in order to contribute to the rehabilitation and stability of the economy, but also to enhance human capital. This study provides empirical evidence for the implementation of the NSPS making the case for a basic package of non-contributory social protection provisions targeted at poor persons in rural areas covering various life-cycle risks. The instruments include cash transfers for children, social pensions, scholarships for lower secondary education, and public works programmes. A microsimulation model is designed using data from the Cambodian Socio Economic Survey 2004 and 2009. The model estimates the potential effects, benefits and returns of the implementation of social protection in Cambodia. Direct (distributional) effects on poverty and inequality, and behavioural (income) effects on human capital accumulation (school attendance), malnourishment (children underweight) and labour participation are estimated. The return of human capital accumulation on household disposable income (approximated by household consumption) is aggregated to quantify a rate of return (RoR) of social protection investments as the relation between the net benefit in terms of total household consumption and the cost of social protection over 20 periods. Additional effects such as behavioural (non-income) effects, spillovers and regional multipliers, institutional change and social cohesion are also discussed but not included in the model. The same applies to financial aspects (e.g. taxation), administrative issues (e.g. inefficiency) and potential targeting errors. The study shows that social protection investments may promote equitable economic growth in Cambodia, by enhancing human development and helping to solve human capital constraints, but also fostering economic development at the household level. The cost of the investment decreases from 1.6% of GDP to 0.8% of GDP over 20 periods (years). Poverty and inequality are immediately reduced after the implementation of social protection. The poverty headcount decreases by 6 percentage points during the first period (year), and population�s average education level is 0.5% and 1.5% higher after 6 and 20 periods (years), respectively. In addition a positive RoR is achieved after 12 periods (years), and an RoR of between 12% and 15% is reached after 20 periods (years). However, the effects, benefits and returns of social protection can be higher if it is implemented together with complementary policies such as improving health and education coverage and quality, enhancing sanitation conditions and infrastructure, fostering economic productivity and the formal labour market, and promoting industrialization, innovation and technical change.
    Copyright Holder UNU-MERIT
    Copyright Year 2012
    Copyright type Creative commons
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    Created: Fri, 13 Dec 2013, 15:16:06 JST