The effect of unconditional cash transfers on labor allocation and farm productivity: evidence from Malawi

Abstract

This paper shows that liquidity constraints prevents the poorest households in Malawi from allocating their labor efficiently. Providing cash—with no strings attached—resolve these inefficiencies and boost productivity. Households randomized to receive unconditional cash transfers leverage the transfers to free up their labor to work on their farm and purchase agricultural inputs (including seeds, fertilizer, and implements) needed for agricultural production. These investments lead to higher agricultural output (harvests).