Hidden impact? Household saving in response to a poor-area development project

The possibility that poor households may prefer to save the income gains from a development project raises concerns about how well standard evaluation methods–using data collected over relatively short periods–can capture the true welfare impacts. By the widely used difference-in-difference method, the Southwest China Poverty Reduction Project had little current impact on the proportion of people in beneficiary villages consuming less than US$1/day—despite a public outlay of US$400 million. However, the program had much larger impacts on incomes than consumptions. Uncertainty about the project's future impact probably made it hard for participants to infer the gain in permanent income, so they saved a high proportion of the current income gains.