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Evaluating Local General Equilibrium Impacts of Lesotho’s Child Grants Programme

2014 — By J. Edward Taylor, Karen Thome, and Mateusz Filipski Department of Agricultural and Resource Economics, University of California, Davis

This report presents findings from a local economy-wide impact evaluation (LEWIE) of Lesotho’s Child Grants Programme. Simulations indicate that total income impacts significantly exceed the amounts transferred under the programme: each loti transferred stimulates local nominal income gains of up to 2.23 loti. By stimulating demand for locally supplied goods and services, cash transfers have productive impacts, mostly in households that do not receive the transfer. Our simulations reveal the importance of the local supply response to changes in demand. Capital and labor constraints exert upward pressure on local prices and reduce the programme’s income multiplier in real terms. Nevertheless, real income multipliers remain significantly greater than 1.0 in most cases, even in the presence of factor constraints. Our findings raise questions about how to measure the impacts of cash transfers, which include effects on non-beneficiaries as well as targeted households. Evaluations focusing only on the treated households are likely to significantly understate programme impacts because of general-equilibrium feedbacks in local economies.