Social Transfers and Growth: Evidence from Luminosity Data

Abstract

The effects of social transfers on growth are still unclear. The limitations of national accounts at subnational levels in developing countries have confined the analysis to the use of simulation models and household-level experimental data. This article contributes to the empirical literature by assessing the effects of Colombia’s Familias en Accion, a human development cash transfer program, on municipal growth rates and per capita growth. The staggered introduction of the program in 2001–4 facilitated an identification strategy based on a difference-in-differences estimation. The lack of subnational GDP data is tackled by using luminosity data generated by satellites orbiting the earth, which have demonstrated to be a suitable proxy for economic growth. The results show that the program generates significant positive effects on municipal growth rates.