From Reuters:

In rural Africa, where money is scarce and subsistence farming the norm, even small injections of cash can go far and help grow a local economy in surprising ways.

These are among the findings of a study by the Washington-based American Institutes for Research (AIR), which over a two-year period analyzed Zambia’s monthly child grants to extremely poor households in three rural districts.

It comes against the backdrop of a wider debate about the role of aid in Africa, especially handouts, which critics say stifle economic activity by creating a culture of dependency and removing incentives to work.

But supporters of aid have long argued that direct cash transfers can give those at the very bottom of the income ladder a leg up, and this seems to be one of these cases.

Aside from greater food security – and it would be expected that such poor family units would spend additional cash on calories – the study found recipients boosted their crop production and also diversified their household income base by setting up small businesses.

‘It has impacts across the board. People can take this money and grow it so it is helping to grow the economy. These households are starting short-term micro-businesses such as small shops,’ David Seidenfeld, a senior researcher with AIR who directed the study, told Reuters in a telephone interview.

‘We know they have more money than they did before, which has enabled them to do all of these things,’ he said.

A simulation model used by the researchers found that each Zambian kwacha ($0.18) transferred to poor households raised, through multiplier effects, the income in the local economy by 1.79 kwachas.

This suggests that such transfers not only alleviate poverty but also stimulate economic activity – though of course on a small scale and from a very low base.

Written by Ed Stoddard | Read more at Reuters