Rates of Return of Social Protection in Cambodia

III. THE MODEL: DIRECT AND BEHAVIOURAL INCOME EFFECTS A rate of return (RoR) is the relation between the net benefits and the costs of an investment.

In order to estimate RoR in Cambodia four social protection instruments (SPI) are simulated.

Cash transfers, social pensions, scholarships and public works have been selected due to their priority under the NSPS, data availability, modelling feasibility and policy decision relevance.

These SPIs cover against vulnerability, human capital constraints and seasonal unemployment. In this sense the study focuses on non-contributory social transfers, and their effects under different scenarios.

Another SPI prioritized in the NSPS are Health Equity Funds (HEF). They protect against catastrophic health risks with benefits accruing only in case of severe illness. A comprehensive picture of the NSPS must include the health sector and contributory schemes.

It is therefore imperative to increase access and quality to health care and education, as well as to scale up benefits and coverage of contribution-based social security schemes and active labour market policies (ALMP). These sectors are not analysed in this study because of data constraints. Nevertheless, there is general agreement on their potential returns in Cambodia, while the proposed SPI are still under discussion. Future research on these issues is recommendable.

The study focuses on benefits at the individual and household level (i.e. direct distributional and behavioural income effects) using different regressions. Later, effects on economic performance at the micro level (approximated by household consumption) are studied. In addition, an extrapolation to the macro level productive capacity is estimated through human capital accumulation for the whole economy. Costs of the selected SPI are defined based on preliminary proposals and previous costing studies (e.g. Hennicot, 2012a and 2012b). In this sense the quantitative analysis is a scenario based ex-ante simulation for the implementation of some SPI from the NSPS. The model does not consider financing aspects. SPI are assumed to be financed from public or external resources.

Table 13 presents the selected policy options (targeting and transfer) based on current design proposals and costing studies for Cambodia (e.g. Hennicot, 2012b). Cash transfers are simulated under three scenarios for poor children up to 6 years old. Transfers are set at 60% of the rural food poverty line (KHR 84,519 monthly per capita in 2009) payable on a monthly base. Social pensions comprise two scenarios for persons 65 years and older with a monthly transfer at 100% of the rural food poverty line. Transfers are given to each member of the household 65 years and older, thereby guaranteeing a minimum living standard for the poor elderly population. This is fully in line with the objective of the Social Protection Floor (Cichon et al., 2011). Scholarships are simulated for poor children in rural areas (excluding Phnom Penh) between 5 and 18 years old. Scenarios (three in total) are defined for each education level. Transfers are set at USD 50 per year (equivalent to 20% of the rural food poverty line per year), based on the information provided by the Ministry of Education Youth and Sport (MoEYS). Transfers are understood as net amounts. The administrative costs of cash transfers, social pensions and scholarships are assumed to be 10% of the transfer value.

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