The “Local Economy” Effect of Social Transfers: An Empirical Assessment of the Impact of the Bolsa Família Program on Local Productive Structure and Economic Growth

Social transfers impact local economic growth through local demand multiplier and local productive structures. Using original data on productive structures, growth determinants and Bolsa Familia conditional transfers (BFP) for the 184 municipalities of the Brazilian state of Ceará during 2003-10, we show that the positive impact of the transfers on local growth is in fact conditional on the direction of local economic structure transformation. Indeed, transfers did spur light manufacturing transformation activities only in the poorest and less-industrialized localities and did prompt informal activities in weakly productive services in all municipalities. Although we do not find support for the hypothesis of a redistribution trap, our estimations indicate that, on average, the growth impact of BFP transfers could have been twice as great during the period investigated in the absence of the adverse impact of social transfers on structural transformation. By promoting services and informal occupations, including in light manufacturing industries, the BFP could possibly cause a problem of job quality in the future. The medium-term impact of social transfers on poor regions' local productive structures should therefore be more fully acknowledged by policymakers, notably by associating policies promoting the development and modernization of local productive structures with transfers.