Transfers, Diversification and Household Risk Strategies: Can Productive Safety Nets Help Households Manage Climatic Variability?

Abstract

Abstract We present experimental evidence on a programme aimed at improving households' risk management through income diversification. The intervention targeted rural Nicaraguan households exposed to weather variability and combined a one-year conditional cash transfer with vocational training or a productive investment grant. Both complementary interventions provided protection against weather shocks two years after the programme ended. Households that received the productive investment grant also had higher average consumption levels. The complementary interventions facilitated income smoothing and diversification of economic activities. Relaxing capital constraints induced investments in non-agricultural businesses, while relaxing skills constraints increased wage work and migration in response to shocks.