The effects of the Indonesian conditional cash transfer program on transition out of agriculture

Abstract

This study evaluates the effect of a conditional cash transfer (CCT) on the structural transformation process in a developing economy. It uses randomized control trial (RCT) data from Indonesia’s Conditional Cash Transfer program, the Family Hope Program (PKH), to examine whether the PKH program has a significant impact on whether or not agricultural households have moved to other sectors after six years of implementation of the program. The estimates reveal modest impacts of the PKH program on diversification of livelihoods outside agriculture. The treatment group has a 28 percent higher participation in nonfarm wage employment and a 23 percent higher rate of employment in a nonfarm enterprise (NFE) compared to the control group. The heterogeneous impact analysis reveals that distance from a market is a major factor in determining the type of non-agricultural employment. Individuals in households with only a small amount of land who reside near a market are more likely to be casual workers, while individuals in households with only a small amount of land who reside far from a market are more likely to have an NFE. Interestingly, participation in a CCT program has larger effects on households residing in nonindustrial areas than in industrial areas, in terms of both nonfarm wage employment and employment in a nonfarm enterprise.