Cash transfers, climatic shocks and resilience in the Sahel

Abstract

Policy makers search for strategies to promote resilience and mitigate the effects of future climatic shocks. In this paper, we assess whether small regular cash transfers strengthen poor households' ability to mitigate the welfare effects of drought shocks. We analyze mechanisms through which cash transfers contribute to resilience, including savings, asset accumulation as well as income smoothing in agriculture and off-farm activities. We combine household survey data collected as part of a randomized control trial in rural Niger with satellite data used to identify exogenous rainfall shocks. The results show that cash transfers increase household consumption by about 10 percent on average. Importantly, this increase is mostly concentrated among households affected by drought shocks, for whom welfare impacts are larger than transfer amounts due to households' enhanced ability to protect earnings in agriculture and off-farm businesses when shocks occur. The results suggest that multi-year cash transfer programs can foster poor households’ resilience by facilitating savings and income smoothing.