No.63-Evaluating the Effectiveness of the Rural Minimum Living Standard Guarantee (Dibao) Program in China

Kakwani, Nanak; Li, Shi; Wang, Xiaobing; Zhu, Mengbing
Published: 2017/6/3 22:47:50    Updated time: 2017/6/3 22:53:54

Abstract: China’s Rural Minimum Living Standard Guarantee program (Dibao) is the largest social safety-net program in the world. Given the scale and the popularity of Rural Dibao, it is necessary to rigorously evaluate it so that policymakers know the extent to which the program meets its intended objective of reducing poverty. This paper develops some new methods and uses data from the 2013 Chinese Household Income Project (CHIP2013) to examine the targeting performance of the rural Dibao program. The paper has found that the Rural Dibao program suffers from very low targeting accuracy, high exclusion error, and inclusion error, and yields a significant negative social rate of return. It discusses possible causes and argues that the fundamental mechanism has to be redesigned to increase the effectiveness of the program. The paper makes some recommendations to reform Dibao that will significantly improve targeting and reduce the cost of running the program. That will help China to achieve its goal of eradicating extreme poverty by 2020.
Keywords: Dibao, Policy effectiveness, Poverty Reduction, Social Rate of Return

Authors: 

Nanak Kakwani (China Institute of Income Distribution, Beijing Normal University; School of Economics, the University of New South Wales)

Shi Li (China Institute of Income Distribution, Beijing Normal University)

Xiaobing Wang (Department of Economics, the University of Manchester; China Institute of Income Distribution, Beijing Normal University)

Mengbing Zhu (China Institute of Income Distribution, Beijing Normal University)

 

1.  Introduction

A growing number of developing countries are investing in a variety of social programs to improve the welfare of their people, particularly those who are poor and vulnerable. In fact, these programs have become an important pillar of economic development policies. The number of targeted programs has increased many folds in developing countries. For example, Coady, Grosh, and Hoddinott (2004) have listed 85 programs in 36 countries. According to a World Bank report, The State of Social Safety Nets 2015, as many as 1.9 billion people are beneficiaries of safety net programs (Kakwani and Son 2016). By providing income to the poor or those who face a probable risk of falling into poverty, in the absence of the cash or in-kind transfers, such successful programs reduced poverty and increased social cohesion and welfare.

China’s Minimum Living Standard Guarantee program (Dibao) is the largest social safety-net program in the world. The program was introduced in urban areas in the 1990s and was considered to be very effective in reducing urban poverty. Chinese government extended the Dibao program to rural areas in the early 2000s in the hope to alleviate the hardship of those under poverty and improve the livelihood of the poor in the countryside. Given that poverty in China concentrates in the rural areas, this could have a significant impact on poverty reduction and equality improvement. In 2013, Rural Dibao provided cash benefits to 12.28 million households covering 42.72 million individual beneficiaries.

Rural and urban areas have separate Dibao programs run by their respective local authorities; different regions have their Dibao line, qualifying criteria and ways of distribution, it is imperative to know the impact and effectiveness of this program. However, there is almost no evaluation of the program in the literature. Golan et al. (2017) provided some descriptive analysis of the program and some preliminary evaluation using the data from 2007 to 2009 when the program was in its early stage.

Given the scale and the popularity of the rural Dibao, it is necessary to rigorously evaluate it so that policymakers know the extent to which the program meets its intended objective of reducing poverty. Thus being able to reduce wasteful spending, increase target accuracy and improve policy effectiveness.

This paper proposes several methods for assessing the effectiveness of the government program and applies these methods on China’s Dibao. It provides a comprehensive empirical evaluation of the rural Dibao program. It is part of a bigger study that the authors will undertake which aims to enhance our understanding of poverty and inequality reduction in theory and improve the targeting and targeting efficiency of the social program in practice.

Targeting is a means to improve program efficiency so that we can achieve the program objectives of maximizing poverty reduction with minimum cost. There are two distinct issues in designing targeted programs; first is identifying the deserving beneficiaries who are the neediest, and the second is deciding on how much transfers should be given to them so that we can meet their minimum basic needs. Accordingly, targeting efficiency is judged by two kinds of targeting methods that we derive from (i) beneficiary incidence and (ii) benefit incidence. We evaluate the rural Dibao using both beneficiary and benefit incidence analyses.

Cost is clearly necessary for any social program. Programs ought to be judged based on how much they contribute to a reduction in poverty in their respective operational costs. In the literature, many poverty measures have been developed having different welfare implications. Among them, the class of poverty measures proposed by Foster, Greer, and Thorbecke (1984) (popularly known as the FGT poverty measures) is the most widely used. We evaluate the Dibao using the idea of the social rate of return (SRR). In calculating SRR, we use social welfare functions that incorporate normative judgments implicit in the FGT poverty measures. The low or negative social rates of return signify that the program is not achieving its objective of reducing poverty with minimum cost.

We have organized the paper as follows: Section 2 provides a critical review of several targeting indicators. It also presents some new evaluation indicators. Section 3 provides a brief discussion of China’s Dibao program. Section 4 discusses the evaluation methodology explaining household welfare measures and poverty line used. Section5 presents our initial evaluation results analyzing the possible causes and consequences. Section 6 discusses the impact of Dibao on poverty reduction. Section 7 provides a new methodology for evaluating Dibao using the idea of the social rate of return (SRR). Finally, Section 8 concludes and discusses policy implications and recommendations.