Progressing through PROGRESA: An impact assessment of a school subsidy experiment in rural Mexico

Increasing human capital investments in children is considered to be among the most effective ways of encouraging growth and of alleviating poverty in developing countries. To stimulate such investments, many governments in Latin America and Asia have initiated programs that provide financial incentives for families to send their children to school. This article evaluates the effects of a large-scale antipoverty and human resource program, PROGRESA, that was introduced in Mexico in 1997. The plan of the article is as follows. Section II describes the key parameters of interest in this study, the Markov schooling transition model, and the assumptions required to apply the simulation method used to evaluate the effects of long-term program participation. Section III provides additional information on the PROGRESA program and data subsamples. Section IV presents the empirical findings. Simple comparisons of enrollment rates reveal effects of the program only for older children, with the greatest changes observed in the age ranges and grade levels for which the school subsidies are greatest, consistent with reported findings in Schultz (2000, 2004). However, when we disaggregate the data more finely using the schooling transition model, it becomes clear that younger children are also affected by the program. For children ages 6-10, program participation is associated with less grade repetition and better grade progression. For children ages 11-14, the program decreases the dropout rate, particularly during the transition from primary to secondary school, and encourages school reentry among those who have dropped out. Section IV.A of the article presents results from our simulation of the effects of longer exposures to the program. The simulated long-term impact of the program is to increase average schooling attainment by an average of about 0.7 grades, with somewhat larger increases for boys than girls. These estimates imply benefit-budgetary cost ratios of at least 1.6, suggesting that from a social point of view the program is productive for those who participate, but we are not able to find any evidence of spillover effects on others. Section V concludes. © 2005 by The University of Chicago. All rights reserved.