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date: 22 October 2020

The Economics of Early Interventions Aimed at Child Development

Abstract and Keywords

A set of policies is at the center of the agenda on early childhood development: parenting programs, childcare regulation and subsidies, cash and in-kind transfers, and parental leave policies. Incentives are embedded in these policies, and households react to them differently. They also have varying effects on child development, both in developed and developing countries. We have learned much about the impact of these policies in the past 20 years. We know that parenting programs can enhance child development, that centre based care might increase female labor force participation and child development, that parental leave policies beyond three months don’t cause improvement in children outcomes, and that the effects of transfers depend much on their design. In this review, we focus on the incentives embedded in these policies, and how they interact with the context and decision makers to understand the heterogeneity of effects and the mechanisms through which these policies work. We conclude by identifying areas of future research.

Keywords: early childhood development, human capital formation, parenting, childcare, parental leave, cognitive skills, socioemotional skills, noncognitive skills, health, health economics

Scope of the Review

This review focuses on a set of policies that are at center of the agenda on early childhood development (approximately up to age 5): parenting programs, childcare regulation and subsidies, cash and in-kind transfers, and parental leave policies. Our focus is mostly on describing the incentives that are embedded in these policies, how households react to them, and the effects that they have, both in developed and developing countries. For most of the review, we abstract from the econometric challenges and from describing the methods that are typical of this research agenda. Berlinski and Vera-Hernández (2019) provides a framework to describe how children skills evolve and how parents make choices relevant for child development, as well as the rationale for government interventions.

There are many factors that affect child development not considered in this review. To start, policies whose main aim is to improve the healthcare that mothers and children receive are not considered, nor are other policies such as child protection policies, family planning, smoking bans, and housing that can also affect child development (see Aizer & Doyle, 2014; Almond, Currie, & Duque, 2018; Doyle & Aizer, 2018, for recent reviews of these policies). The literature has also been very prolific on studying how different shocks and environmental changes (e.g., famines, environmental disasters, pollution, and influenza) and household endowments (e.g., parental education, income, and wealth) affect child development. The focus here is strictly on policy interventions, but refer to Almond et al. (2018) and Conti, Mason, and Poupakis (2019) for excellent reviews of these topics.

Parenting Interventions

Children receive caregiving from parents/guardians and other adults. Even when children go to childcare full-time, they spend a substantial amount of time with their parents/guardians who make key decisions regarding food, health, rest, and play. These choices will have important effects on children’s welfare and developmental outcomes. At first pass it is rather obvious that parents do not know the human capital production function. A herd of scientists have not been able to figure it out either. However, there is a set of recommendations (e.g., Shonkoff et al., 2012) that child development experts have collectively agreed are likely to bolster child development.

A parenting intervention focuses on changing parental behavior by providing information and training in the areas of nutrition (e.g., Kramer et al., 2001), maternal and child health (e.g., Olds, 2006), child behavior (e.g., Dishion et al., 2008), and cognition (e.g., Grantham-McGregor, Powell, Walker, & Himes, 1991) with the objective of ensuring that parents follow recommended practices for childrearing. These interventions can be applied in isolation or as a component of a more comprehensive program that can include center-based care (e.g., Love et al., 2005) or parental support in other areas such as achieving economic self-sufficiency (e.g., Olds et al., 1997). Irrespectively of the objective, in a parenting program a qualified professional (e.g., a social worker, nurse, or psychologist) or a trained volunteer meets with parents individually or in groups.1 Following a preestablished protocol, he or she uses coaching, teaching, or demonstration to target the areas of behavior where parents may need support.

For example, the World Health Organization recommends exclusive breastfeeding until six months of age and the introduction of solid foods thereafter. Parents may not be aware of these recommendations or how to implement them successfully, which means that their choices are likely to be inefficient. Interventions have been designed to explain to parents the expected consequences of following this nutritional advice (e.g., Bhandari et al., 2003; Del Bono & Rabe (2012); Fitzsimons, Malde, Mesnard, & Vera-Hernández, 2016; Haider, Ashworth, Kabir, & Huttly, 2000; Kramer et al., 2001; Lewycka et al., 2013; Morrow et al., 1999; Tylleskär et al., 2011) and to initiate and maintain breastfeeding during the first two years of a baby’s life.2

There is a growing literature (see Avellar et al., 2016; Berlinski & Espinoza, 2017, for systematic reviews) showing that parenting interventions that target different domains and of varying intensities (i.e., cost3) can have positive effects on child development outcomes. For example, Berlinski and Espinoza report effect sizes for programs that can be implemented at scale in both developed and developing countries.4 Effect sizes vary greatly depending on the outcome (health, cognitive, or behavioral) and on the intensity of the program. In general, effect sizes for programs at scale are in a range between 0.10 and 0.30 of a standard deviation.5 Moreover, the impacts of these interventions may persist into youth and adulthood and improve outcomes such as criminal behavior, income, and health (Gertler et al., 2014; Olds et al., 1998; Walker, Chang, Vera-Hernández, & Grantham-McGregor, 2011).

There is a certain degree of agreement (see, e.g., Avellar et al., 2016) about some of the factors associated with making these interventions successful (e.g., preservice training requirements, a system for monitoring fidelity of implementation, and structured content and activities).6 However, there is still a lot of uncertainty about what aspects of these programs can be relaxed to make them more cost-effective. Can the programs be implemented cost-effectively by trained volunteers instead of professionals (e.g., Attanasio et al., 2014)? How important is the quality of the individuals delivering the program (Cattan, Conti, & Farquharson, 2019)? Can the programs be implemented cost-effectively in groups rather than individually (e.g., Attanasio et al., 2018; Chang et al., 2015)? Can the programs be implemented cost-effectively with less intensity (e.g., Powell & Grantham-McGregor, 1989)?

Few studies, however, look at the impact of economic incentives on service delivery in early childhood programs. An exception is the work by Singh and co-authors (Singh, 2015; Singh & Mitra, 2017) who offer monetary incentives (as a function of performance) among childcare centers in India.7 Performance is measured based on reductions in the number of children that are moderately or severely malnourished. The authors find that the piece rate scheme contributes toward reducing the extent of malnutrition. These strategies could, in principle, be applied for the delivery of parenting programs. However, research should carefully assess how to measure progress and prevent cream skimming (e.g., workers not signing up children who need more time or resources to improve). In this regard, incentives on inputs (i.e., number of visits) might be less prone to unintended consequences than incentives on outputs.

Another margin of implementation that can be interesting to economists is the individual versus group dimension. Besides the obvious reduction in cost derived by dividing treatment among more individuals, group treatment may contribute toward creating social ties in the community (Feigenberg, Field, & Pande, 2013), improve risk-sharing (Malde & Vera-Hernandez, 2016), and spread other good practices more widely among parents. Group strategies may be better suited for more motivated parents or, to the contrary, they may increase motivation among parents reluctant to change their practices. Research in this area is much needed.

Although there is substantial evidence that parenting programs can successfully impact child development, less is known about the channels by which these interventions change parental behavior. Do they change the perceived benefits of parental actions? Do they increase the set of good practices known by the parents? Do they help parents find the activities that are better suited to the child’s age? Do they reduce the net costs of implementing good practices (e.g., by teaching parents inexpensive ways of preparing healthy meals and making toys, making playing with children more enjoyable or breastfeeding less tiring)?8 An alternative hypothesis, more grounded on behavioral economics, is that home visits act as reminders to parents who, maybe because of poverty, exhibit reduced cognitive function (Boswell, Schilbach, & Schofield, 2017; Karlan, McConnell, Mullainathan, & Zinman, 2016; Mani, Mullainathan, Shafir, & Zhao, 2013).

There is a nascent literature that combines structural models and randomized control trials of early childhood interventions to disentangle the channels that make these interventions successful. Attanasio, Cattan, Fitzsimons, Meghir, and Rubio Codina (2017) examine how a scaled-up version of an influential parenting intervention in Jamaica (Grantham-McGregor et al., 1991) led to significant gains in cognitive and socioemotional skills among a sample of disadvantaged children in Colombia.9 The authors find that parental investments matter for the accumulation of skills.10 Further, they cannot reject the null hypothesis that the production function estimates are the same between those who randomly received the parenting intervention and those who did not. Indeed, the program does not seem to have changed the productivity of the parental investments but rather increased parental investments resulting in improved child outcomes. The question remains whether investment rises because of a change in the perceived benefits of early childhood investment or because the intervention made investments less expensive.

There are also some appalling forms of parental behavior such as child abuse and violence. For example, Berlinski and Schady (2015) report a high prevalence of harsh punishment toward children in many countries of in Latin America and the Caribbean. In most countries, harsh punishment varies significantly according to the education level of the mother. Weinberg (2001) argues that that parents’ ability to mold their children’s behavior through pecuniary incentives is limited at low incomes, leading to increased reliance on nonpecuniary mechanisms such as corporal punishment. Therefore, as income increases in these countries, there may be a fall in these forms of punishment. This argument, however, seems not particularly well suited to explain corporal punishment in early childhood. Indeed, little is known about how parenting practices are influenced by laws (e.g., abortion laws, divorce laws, child protection laws), culture (e.g., religion, TV programs), and social norms (e.g., role of women in society).11 Effective interventions require a better understanding of the underlying factors that play a role in the persistence or eradication of harsh punishment. Doyle and Aizer (2018) provide a recent review on the economics of child protection policies.

Center-Based Care

When the parents/guardians of a child decide to work, they must look for alternative modes of childcare for their children. In urban and semi-urban areas of both developed and developing countries, many parents rely on center-based care or daycare centers. Historically, governments have supported the expansion of daycare centers with the aim of providing incentives for women to work or to enhance child’s development. Daycare services are delivered through different institutional arrangements: private providers, private/community providers with partial subsidies from the state, and public providers.

In choosing a childcare provider, parents must balance convenience, price, and quality of care (Blau & Currie, 2006, 2008). Convenience is reflected in the distance to their house or their job and the hours of operation of the center. There is evidence from developed countries that prices (e.g., Baker, Gruber, & Milligan, 2008; Havnes & Mogstad, 2011a) and convenience (e.g., Neidell & Waldfogel, 2009) are important determinants of daycare choice. However, how the well-being of children is affected by attending a daycare center instead of being cared for by their parents or other childcare providers at home hinges crucially on the quality of care. This is true even when considering the additional resources that are available to the households if parents are working (Bernal & Keane, 2011).

Because of problems of information asymmetry, quality might be underprovided (Akerlof, 1970). To start with, quality is not unidimensional. It is now customary to distinguish between structural quality (child-staff ratio, staff qualifications, and quality of the infrastructure of the center) and process quality, which depends on the curriculum and the appropriateness, quality, and variety of interactions between the child and the carer (Blau & Mocan, 2002; Hayes, Palmer, & Zaslow, 1990; Lamb, 1998; Love, Schochet, & Meckstroth, 1996). The evidence seems to suggest that process quality is critical for child development, possibly conditional on a certain level of appropriate structural quality (Blau & Currie, 2006). While parents might be able to infer structural quality from a snapshot of observable features of the center, it will be much harder to infer process quality without the appropriate professional background.12

A different but related problem is not whether parents can perfectly observe quality but whether they are well informed on what represents good quality and its importance in the production function. For instance, Mocan (2007) finds that more educated parents tend to agree more with trained observers when assessing the quality of a childcare center. This is related to the problem of whether parents understand the production function of child development, reviewed in Attanasio (2015) and Berlinski and Vera-Hernández (2019).

Policy Options

Center-based childcare is often regulated using minimum quality standards, price subsidies, or other policies such as auditing and dissemination on quality scores, or accreditation. In this section, these policy options are considered, as well as the effect of childcare on child development, both overall and according to certain characteristics.

Minimum Quality Standards

Regulation of daycare centers seems natural if either parents fail to recognize what good quality is, do not appreciate its importance for child development, and/or cannot observe it. Regulation can also be justified if good-quality preschool is an effective way of improving child development but parents fail to internalize the social benefits of improving child development (Hotz & Xiao, 2011).

Center-based care is usually subject to some minimum quality standards such as child-staff ratios, staff qualifications, and so on. Making these requirements more stringent is a possible way in which governments might attempt to improve the quality provided in childcare centers. However, the childcare market exhibits a number of features that cautions against possible unintended consequences (Blau & Currie, 2006; Hotz & Xiao, 2011; Walker, 1991).

First, governments cannot regulate the quality provided directly, only inputs used to provide the quality, and typically they cannot regulate all of them. Because childcare centers use a variety of inputs, if they are forced to increase some of them, they might decrease the level of inputs for which the regulation is not binding (Blau, 2003b, 2007). The overall effect on the quality provided will depend on the relative importance of the inputs that increase and decrease, as well as how much they change.

Second, minimum quality standards are harder to set on process quality than structural quality. Examples of minimum quality standards to improve process quality include requesting that childcare centers follow an established curriculum and that they record when different activities take place. However, it is very difficult to monitor the quality of these, while it is very easy to monitor staff-children ratios and other structural quality inputs.

Some minimum quality requirements on structural quality might be complements of process quality. For instance, it might be less costly for better-trained teachers to engage in developmental enriching activities than it is for less trained ones. Also, if teachers are altruistic, and better-trained teachers are more aware of the importance of process quality for child development, it would be psychological costlier for them not to engage in enriching activities with the children. The channels through which complementarities and linkages between structural and process quality take place is of obvious importance to understand the success of minimum quality regulations in childcare centers, but this is still an area in which more research is needed.

The consequences of imposing minimum quality standards in childcare markets has to do with the different options that parents face when choosing a childcare provider. They could rely on less regulated family daycare homes, in which usually the owner cares for several children in his or her own home, sometimes aided by an assistant. Alternatively, parents can rely on relatives (e.g., grandparents) to provide care for their preschool children at home, or one of the parents can quit the labor force. A number of studies find that the care provided in childcare centers is, on average, of higher quality than the care provided in family daycare homes or by relatives (Bernal & Keane 2011; Currie & Hotz, 2004; Gupta & Simonsen 2010; Havnes & Mogstad, 2011b; Loeb, Bridges, Bassok, Fuller, & Rumberger, 2007).13

Currie and Hotz (2004) and Hotz and Xiao (2011) report that there are winners and losers of increasing minimum quality standards of childcare centers. They find that tightening the quality standards is effective, and it increases the quality received by those still attending childcare centers. However, the increase in costs that goes hand in hand with the increase in quality means that low-income households may be priced out from using childcare centers and may switch to less regulated family daycare homes, as well as care by relatives, and hence the quality of care they receive may worsen.

Price Subsidies

Subsidies to childcare are another instrument that governments use to intervene in the childcare market. A fixed childcare subsidy per hour will increase the net wage and, consequently, increase parental labor force participation and decrease unpaid childcare.

The effect of childcare subsidies on the quality of childcare cannot be determined unambiguously. Those children that transfer from informal childcare (friends and relatives) to paid childcare probably experience an increase in quality as informal childcare is thought to be of worse quality. But it is less clear for those children who transfer from parental childcare to paid childcare. The effect of that transfer on quality will depend on the quality of the childcare provided by the parents (which might depend on their education, income, etc.) vis à vis the quality of the daycare center (Bernal, 2008; Bernal & Keane, 2011). Moreover, these households will experience the increase in income that comes with labor force participation, and that might have its own independent effect on child development (see later discussion).

The mechanisms just described operate through the extensive margin, that is, by more children attending paid childcare. However, childcare subsidies might also increase the quality supplied because they essentially lower the price per unit of quality. Subsidizing the wages of childcare workers operates very similarly, as it decreases substantially the marginal cost of childcare. Blau and Mocan (2002) estimate the cost and price functions and use them to simulate the effect of subsidies to childcare prices and wages in the United States. They conclude that process quality is moderately responsive to price subsidies (price elasticity of quality estimated to be 0.66 in the for-profit sector and 0.48 in the non-profit sector) and wage subsidies (average wage elasticity of quality estimated to be–0.8). These findings are important, not only because they refer to process quality but also because they suggest that relatively simple interventions would lead to significant quality improvements. Using a reduction in subsidies to private childcare centers (but not to public ones) in the Netherlands, Akgunduz, Jongeny, Lesemanz, and Plantengax (2015) also find that process quality is significantly responsive to subsidies.

So far, subsidies that are neutral in terms of the quality that they subsidize have been discussed. However, there are also price subsidies for which only childcare providers of certain quality are eligible. Examples include the childcare subsidies in the United Kingdom and the Child Care Development Fund in the United States. These subsidies tend to increase quality more than the neutral subsidies described previously but are typically less effective at increasing parental labor supply (Blau & Currie, 2006).

Other Policies

Other less studied policies that attempt to increase the quality provided by childcare providers include the publication of inspection ratings, quality accreditation, and explicit monetary incentives based on children’s outcomes. For instance, in the United Kingdom, the Office for Standards in Education, Children’s Services and Skills (OFSTED) undertakes inspections of childcare centers and publishes a report and rating for each center, which is publicly available to parents on the OFSTED web portal, as well as on the premises. The inspections attempt to assess process quality by interviewing staff and parents, observing activities, interacting with children, and reviewing the documents used to track children’s progress. This type of policy, which attempts to reduce the asymmetry of information on quality between parents and childcare providers, has to our knowledge not been studied using well-defined counterfactuals.

Establishing an accreditation system is another mechanism to improve the quality of childcare settings. The rationale of an accreditation scheme is the same as of any signaling system à la Spence (1973): it is cheaper for high-quality providers to achieve the status required for accreditation. Xiao (2010) estimates a structural model to find that U.S. parents infer more information from the provider’s reputation than from the accreditation status, which means that the incentives for providers to seek accreditation status are limited.

Explicit monetary incentives based on a value-added metric of child development could also be conceivably used to improve the quality of childcare centers. Apart from small-scale pilot studies on performance pay linked to nutrition (e.g., Singh, 2015; Singh & Masters, 2017; Singh & Mitra, 2017), there are no large-scale policies that use this approach. Apart from general concerns related to pay-for-performance schemes such as crowding out of provider’s intrinsic motivation (Fehr & Falk, 2002; Gneezy, Meier, & Rey-Biel, 2011), teaching to the test, and cream-skimming, measuring development of preschool children is particularly time intensive and costly, and the measures might be particularly noisy.

The Effect of Center-Based Care and Policies Promoting Center-Based Care

The effect of policies that promote the use of center-based care depend on the one hand on the benefit they provide to those who receive them and on other hand on the counterfactual state (i.e., the outcome for the recipient in the absence of the policy). Considering the benefit side, crucially the success of the policy will depend on the quality of care provided at the center: this will be the direct effect of the policy. Moreover, the subsidized provision of childcare may induce behavioral change, and the use of center-based care has the potential of affecting households through a direct income effect and by affecting the benefit on an extra hour of work. On the counterfactual side, the quality of the alternative care arrangement will determine the importance of the direct effect of center-based care. Given the nature of childhood development and the technology of center-based care, there might be heterogeneity of effects by children’s age. We take on these issues in what follows:

Relative Quality

If children are not attending formal center-based childcare, they must be taken care of by their parents/guardians, qualified nannies, or informal childcare providers (friends or unqualified nannies). Children outcomes will improve if children receive more/better inputs with center-based childcare than with their counterfactual care provider. It is the relative difference that is of interest. “Model” programs such as Carolina Abecedarian, the Perry Preschool Project, the Early Training Program, and the Milwaukee Program have very large impacts on childhood development (and many on adult outcomes as well) because they are intense and of high quality and moreover are targeted to disadvantaged households; consequently, these children are likely to receive lower levels of inputs in the absence of childcare.14

The impact of large-scale universal childcare programs might be quite different from that of the model programs: the provision itself is of less quality and, because they are universal, children from better-off backgrounds also enroll in them (Baker, 2011).15 Indeed, the evidence on the impact of universal programs on children outcomes is more mixed than in model programs. While Berlinski, Galiani, and Manacorda (2008), Berlinski, Galiani, and Gertler (2009), Havnes and Mogstad (2011b), and Felfe, Nollenberger, and Rodríguez-Planas (2015) report positive average effects of universal childcare expansions, others find null or negative impacts (Baker et al., 2008; Baker, Gruber, & Milligan, 2015; Gupta & Simonsen, 2010) or even positive effects on academic skills but an increase in behavioral problems (Magnuson, Ruhm, & Waldfogel, 2007). Possibly the relative quality gain is smaller (or even negative) between childcare and parental (counterfactual) care for children from affluent backgrounds, which can explain why the effects of childcare might be null or negative especially for children of more advantageous backgrounds (Ichino, Fort, & Zanella, 2019; Havnes & Mogstad, 2015). Because of this, childcare can exhibit a pattern of reverse selection on gains, because children from better (worse) family backgrounds are more (less) likely to attend but gain less (more) from attending childcare because of their better (worse) outcomes at home (Cornelissen, Dustmann, Raute, & Schönberg, 2018; Felfe & Lalive, 2018; Noboa-Hidalgo & Urzua, 2012).

It is also worth pointing out that the model programs were not only targeted to poor children but were usually run at a single site (e.g., the Abcedarian was operated at a site at the University of North Carolina in Chapel Hill for the sole purpose of the experiment), so the conclusions from these studies are hard to generalize. There are, however, other large-scale targeted programs. The U.S. federally funded Head Start program is the most well studied. Nonexperimental estimates of its impact on a variety of short- and long-run outcomes are positive and substantial (Carneiro & Ginja, 2014; Currie & Thomas, 1995; Deming, 2009; Garces, Thomas, & Currie, 2002; Gibbs, Ludwig, & Miller, 2011; Ludwig & Miller, 2007).16 In developing countries, it is often the case that targeted programs have substantial scope to improve their quality. However, despite their low quality, they could still have positive effects because they are targeted to very disadvantaged children. For example, despite deficiencies in the quality of community nurseries in Colombia, Bernal and Fernández (2013) and Attanasio, Di Maro, and Vera-Hernández (2013) find positive effects on nutrition and cognitive and socioemotional development for the poorest Colombian children attending these nurseries, and Behrman, Cheng, and Todd (2004) find positive effects of a similar program in Bolivia.17 Bouguen, Filmer, Macours, and Naudeau (2018) find null or negative effects of exposure to newly constructed preschools in Cambodia, probably because the counterfactual (at least for the oldest children) would have been to attend primary school (which is probably of higher quality) earlier. Some developing countries are shifting their focus toward improving quality of center-based childcare (see, e.g., Bernal & Ramírez, 2018; Nores, Bernal, & Barnett, 2016, which report positive effects on child development in Colombia), which is potentially very important for children’s learning (Araujo, Carneiro, Cruz-Aguayo, & Schady, 2016).

Given that relative quality of care is likely to determine direct impact of childcare use, it is important to document the type of care that is being crowded out by the use of center-based care. This is likely to depend on the characteristics of the childcare arrangements (i.e., partial vs. full time), the pre-existing levels of maternal labor supply, and the use of center-based childcare, as well as mechanisms or criteria through which excess demand is rationed. The expansion of childcare that took place in the 1970s in Norway did not increase the maternal labor supply and mainly crowded out informal care arrangements (Havnes & Mogstad, 2011a), which are thought to be of worse quality. Their results on maternal labor supply are in line with those of Lundin, Mörk, and Öckert (2008) and Cascio (2009). However, Schlosser (2006), Berlinski and Galiani (2007), Baker et al. (2008), Lefebvre and Merrigan (2008), and Carta and Rizzica (2018) find positive effects on maternal labor supply, which implies that childcare intervention may crowd out maternal time.

The effects can be even more complex if a particular type of childcare center is being promoted. For instance, the expansion of the Head Start program in the United States has partly crowded out other forms of center-based childcare (Bitler, Domina, & Hoynes, 2014; Kline & Walters, 2016), and hence it will be the relative quality between the centers that are crowded-in and the ones that are crowded-out that will partly determine the effect of the policy. The expansion of slots following the introduction of a childcare subsidy in the United Kingdom was mostly through the private sector, which on average were of worse quality than public ones (Blanden, Del Bono, McNally, & Rabe, 2016).

Market Goods, Income Effects, and Child Development

Childcare and labor supply decisions are tightly linked. Households can usually increase available income by increasing labor supply and having their children taken care of by a formal or informal provider. The effect of these choices on child development will not only depend on the relative quality of care of parents versus the childcare provider (as previously argued) but also on the ability of households to produce child development with other market goods, which they can afford with the extra income. If market goods are good substitutes for childcare quality, parents could compensate for lower quality in the childcare setting (Havnes & Mogstad, 2015). There is little direct empirical evidence on this issue, but the research on the effect of cash transfers (see next section) on child development can indirectly shed some light, as well as the estimates on the production function of human capital previously reviewed in Berlinski and Vera-Hernández (2019).

Governments often attempt to promote childcare with price subsidies. Obviously, they will have income effects, which will compound the effects just mentioned. Depending on the household characteristics and the design of the subsidy (part or full-time care, parents’ labor market status, means tests, etc.), household labor supply could increase or remain constant, and the policy can increase or decrease the time that children spend on childcare. For instance, the 12.5 hours of subsidized childcare a week studied by Blanden et al. (2016) in the United Kingdom contributed to only a very modest increase in the number of hours that children spent in childcare (with effects being larger for more disadvantaged families), and so its main effect was a pure income transfer for households that were already buying childcare before the policy was implemented. Similarly, Black, Devereux, Løken, and Salvanes (2014) find that a childcare subsidy in Norway did not change either parental labor force participation or the use of childcare as there was excess demand for childcare slots, but still academic performance in junior high school increased, suggesting that the increase in disposable income due to the subsidy was responsible for the improvement on children’s academic performance.

Peer Effects

By attending childcare, a child will interact with other children, which in itself will be part of the activities that will shape the child’s development. Children attending a childcare setting might be of different backgrounds. Children from less affluent backgrounds can potentially benefit from the presence of children from better-off backgrounds, and children from better-off backgrounds might not benefit as much because of the presence of children from worse-off backgrounds.

As previously mentioned, a consistent result in the literature is that children from worse-off backgrounds tend to benefit more from childcare than children from better-off backgrounds. Although this is generally thought to be due to the relative quality of care at home versus the childcare setting (see previous discussion), the presence of these peer effects is a competing hypothesis that can explain the same result (Cascio & Schanzenbach, 2013). More research is needed on the presence of peer effects in center-based care because its importance has implications for the expansion of targeted versus universal childcare programs.


Most research considers childcare attendance when children are between three and five years old and generally finds positive or null impact (Berlinski et al., 2009; Felfe et al., 2015; Fitzpatrick, 2008; Gormley, Phillips, & Gayer, 2008; Havnes & Mogstad, 2011b; Magnuson et al., 2007). However, it is often hypothesized that childcare might be less beneficial (or even harmful) for very young infants (zero to two years), partly because young infants do not interact much with each other, one-to-one interactions with adults are very important for very young infants (Csibra & Gergely, 2009, 2011), and early childcare could reduce the duration of breastfeeding, which can affect child development (Anderson, Johnstone, & Remley, 1999; Del Bono & Rabe 2012; Fitzsimons & Vera-Hernández, 2013; Horta, Loret de Mola, & Victora, 2015; Kramer et al., 2008).

The empirical evidence on differential effects of childcare by age is mixed. In countries with high-quality settings, childcare has been found to improve child development of very young infants (see Drange & Havnes, 2019 [Norway]; Felfe & Lalive, 2018 [Germany]; Noboa Hidalgo, & Urzua, 2012 [Chile]). However, there are also examples of negative effects of childcare on the child development of very young infants. Ichino, Fort, and Zanella (2019) find negative effects for children aged zero to two from relatively affluent families in Bologna in both cognitive and socioemotional measures of development but no effects for less affluent families. The negative result might be due to differences in relative quality (as explained earlier) rather than the age per se, especially as their childcare centers have more children per adult than the childcare centers studied by Felfe and Lalive (2018) or Drange and Havnes (2019). Baker et al. (2008) also finds negative effects of childcare subsidies for zero to four years old in Quebec, and although the reform that they exploit tried to increase quality, the negative effect might be a transitional one because in the short term, the quality might have been affected by the rapid expansion.18

Parameter Being Estimated

The research design and information available also conditions what parameter is identified and hence what can be learned from a particular setting. One important difference across studies is whether they estimate short- or long-term effects. Short-term measures often include cognitive and socioemotional developmental tests taken at early ages or some measures of academic achievement in school. However, it is not easy to estimate how much of the potential gains will translate into earnings and well-being in adulthood: short-term impacts could fade out with time or, on the contrary, amplify (e.g., if dynamic complementarities are important). This is also relevant for negative impacts. For instance, Baker et al. (2008) found that childcare harms socioemotional development in the short term, which in the absence of their longer term estimates provided in Baker et al. (2015) could have been interpreted as a short-term cost of socialization that might not make a difference in the long run. Longer term studies that exploit administrative records (e.g., Baker et al., 2015; Chetty et al., 2011; Havnes & Mogstad, 2011b, 2015) or longitudinal data (e.g., Carneiro & Ginja, 2014) can circumvent these problems, although they might face others such as attrition, selective migration, or more limited information.

Another important difference across studies is whether they focus on intention-to-treat estimates or estimates of actual attendance. The typical study that focuses on intention-to-treat exploits a reform that aims at increasing childcare attendance but does not have individual information on who attended childcare. This presents two problems. First, not all reforms succeed at increasing childcare attendance. As previously mentioned, the most important effect of some subsidies could be an income effect, rather than an actual increase on childcare attendance. The second problem is that the study will find difficult to establish whether the effect of the reform for a particular sociodemographic group is small due to lower take-up rate or a lower benefit conditional on attending (Cornelissen et al., 2018).

Recently, Kline and Walters (2016), Cornelissen et al. (2018), and Felfe and Lalive (2018) adopted the Marginal Treatment Effect framework (Björklund & Moffitt, 1987; Heckman & Vytlacil, 1999, 2005) to study the impact of attending daycare. When the exogenous variation is strong enough to generate a propensity score with full support, the strategy allows estimation of a rich set of parameters such as Treatment on the Treated and Treatment on the Untreated, as well an understanding of how the impact of attending childcare varies with unobservable characteristics that make the child more or less likely to attend. Using this strategy, both Cornelissen et al. (2018) and Felfe and Lalive (2018) have found the pattern of reverse selection (those who benefit more from childcare are less likely to attend), previously mentioned.


Governments make extensive use of transfers (monetary or in-kind) to increase the resources available to families with children. The literature on child development has divided the effect of income on child development into two complementary channels: a pure income channel and a “family process” channel (Yeung, Linver, & Brooks-Gunn, 2002).

The argument behind the income channel will be familiar to all economists: if child health and development is a normal good, an increase in income will lead to an increase in the purchase of inputs and, ultimately, to an improvement in child health and development (Currie, 2009). Although the income effect is positive, its effect on child development will depend on several factors (besides the size of the transfer and the relative prices):

  1. 1. The productivity of the inputs that can be purchased in the market.

  2. 2. The share of the transfer that is spent on parents’ leisure or pure consumption goods, which does not foster child development. In turn, this will depend on:

    1. a. the parents’ beliefs on the productivity of the inputs.

    2. b. the preferences of the decision-makers. If there are two decision-makers (parents) with different preferences, their bargaining power will be crucial. In the context of the collective model (Chiappori, 1988, 1992), Blundell et al. (2005) point out that an increase in the bargaining power of one parent (through an increase in their Pareto weight) will increase the consumption of children’s goods if and only if the marginal willingness to pay for children’s goods of the favored parent (out of his or her own resources) is more sensitive to increases in his or her private consumption than that of the nonfavored parent. Hence, it is the relative differences in marginal willingness to pay rather than the absolute marginal willingness to pay that is crucial to determine how much “leakage” would be out of child goods.

  3. 3. Whether the transfer is permanent or transitory. A permanent income increase will have a larger effect on child development if families are forward looking and consider current and future income when making investment decisions on behalf of their children (Dahl & Lochner, 2012).

Complementary to the income channel, the family process channel highlights that poverty increases parental stress and deteriorates parents’ psychological well-being, which then leads to worse parenting practices (Conger et al., 1992; Conger & Elder, 1994; Elder & Caspi, 1988). The family process channel could potentially be extended with the hypothesis that poverty reduces cognitive functioning (Boswell, Schilbach, & Schofield, 2017; Mani et al., 2013).19

Large transfers can also have effects on child development, even through channels that are not straightforwardly incorporated in standard models, as the one outlined in Berlinski and Vera-Hernández (2019). For instance, in Argentina, an increase in noncontributory pensions to women increased divorce rates and changed the distribution of household chores between men and women (Berniell, de la Mata, & Machado, 2019).

It is important to distinguish the effect of income on child development from the effect of transfers. This is because transfer policies are often more complex than a change in household income. Indeed, transfers come in many shapes and forms. In what follows, the different type of transfers are described, along with their economic underpinnings and their impact on child development.

Unconditional Cash Transfers

A pure unconditional cash transfer (UCT) consists of a lump sum cash transfer, which is unconditional on the behavior of the household’s members. In practice, most transfers to households with children are conditional on some variable such as the number of children, parent’s labor force participation, maximum income threshold, and so on. However, they are unconditional in the sense that their receipt of the transfer does not depend on the household acquiring a specific amount of inputs (child-well clinics, vaccinations, nutritional intake, etc.). It is in this sense that it is used here.

González (2013) considers the effect of a significant and unanticipated lump-sum transfer of around US$3,900 to mothers who had a baby in Spain after July 1, 2007. She finds that mothers stayed out of the labor force longer after childbirth, which is consistent with the theoretically expected negative effect of income on labor supply. Therefore, children from eligible mothers were less likely to be in formal childcare in the first year of life, which can influence child development (Bernal, 2008; Bernal & Keane, 2011). This is an example of an indirect effect that goes beyond the pure income effect or the family process effects previously described.

The Earned Income Tax Credit (EITC), which provides important cash transfers to U.S. families, is a good example of a transfer policy that is more complex than a change in household income. To be eligible for EITC, at least one household member must be working, but, after a threshold, the benefit amount received decreases with the income earned by the household. This benefit scheme provides incentives for single mothers to enter the labor market but for most secondary earners to reduce participation and hours of work.20 Indeed, there is consistent evidence that EITC positively impacts labor market participation of single mothers but reduces the labor market participation of secondary earners (Eissa & Hoynes, 2006; Hotz & Scholz, 2003). Similarly to González (2013), these changes in labor market participation could have effects on childcare arrangements and hence on child development.21 In the United States, changes in labor market participation might also have an effect on access to healthcare (through insurance coverage), which could also affect child development (Hoynes, Miller, & Simon, 2015).22 Indeed, the indirect effects that the transfers cause will be intrinsically related to the design of the transfer and the institutional context in which it is implemented.

Recent evidence from the United States and Canada that exploits arguably exogenous variation on benefit entitlement finds positive effects of transfers on child health and development. Hoynes et al. (2015) find that the EITC increases prenatal care and birth weight. Dahl and Lochner (2012) find that EITC expansions improve children’s math and reading achievement, and Milligan and Stabile (2011) find that the Canadian child benefit expansion improves children’s test scores and mental health.23,24

Heckman and Mosso (2014) caution against taking these results (and those of other studies that they review) as evidence that family income (or pure unconditional transfers) significantly improves children’s outcomes. This is, partly because of the possible indirect effects (i.e., on labor supply) mentioned previously. However, Agostinelli and Sorrenti (2018) control for the endogeneity of both family income and maternal labor supply (using EITC expansions and shocks in the local labor demand) and find that family income improves cognitive development but has no effect on socioemotional development, while maternal labor supply negatively affects both.

Related to this, research based on lotteries finds little effect of winning the lottery on child development (Bleakley & Ferrie, 2016; Cesarini, Lindqvist, Östling, & Wallace, 2016), but there are important issues of comparability across samples and contexts. This is not to be underestimated, especially because the positive effects of transfers on child development may be larger among the poorest families. For instance, Løken (2010) fails to find a statistically significant effect of family income on children’s educational attainment when exploiting the Norwegian oil boom, but, exploiting the same source of exogenous variation, Løken, Mogstad, and Wiswall (2012) uncover that the relationship is concave, hence the effect is concentrated among the poorest.

The question on how effective transfers are to improve child development has also been investigated using structural rather than reduced form approaches. Although Del Boca, Flinn, and Wiswall (2016) found small impacts of purely UCTs on child development, using more general technologies, Agostinelli and Wiswall (2016) find that modest UCTs would have substantial effects on child development. They also find that the effect of transfers is larger for more disadvantaged children.

The effects of UCTs in developing countries are not too dissimilar from those in developed countries. Amarante, Manacorda, Miguel, and Vigorito (2016) find that the transfers decrease maternal labor supply and the incidence of low birthweight in Uruguay (probably because of an improvement in maternal nutrition), results that resemble those of González (2013) and Hoynes et al. (2015). UCTs have also been shown to improve nutritional inputs and outcomes (Duflo, 2000; Haushofer & Shapiro, 2016; Leroy, Gadsden, Rodríguez-Ramírez, & de Cossío, 2010) as well as cognitive and socioemotional development, at least for particularly disadvantaged groups (Fernald & Hidrobo, 2011; Paxson & Schady, 2010).25

A common issue of transfer programs in both developed and developing countries is that the transfer recipient is the mother rather than the father. This is done on the assumption that allocating the transfer to mothers rather than fathers will result on a larger share of the transfer spend on children. Indeed, outside non-unitary models, the recipient of the transfer matters for the pattern of household expenditures (Bourguignon, Browning, Chiappori, & Lechene, 1993; Browning, Bourguignon, Chiappori, & Lechene, 1994). Consistent with this evidence, Duflo (2000) finds that the improvements on health and nutrition are entirely driven by transfers received by women. Further, Schady and Rosero (2008) find that transfers received by mothers result in higher expenditure on food than that predicted by the pre-transfer Engel curve. However, the results in this regard are not unanimous: Akresh, de Walque, and Kazianga (2016), who randomize the gender of the transfer recipient (as well as whether it is conditional), find that giving to fathers leads to better nutritional outcomes. As previously mentioned, it is the relative (rather than the absolute) differences in the marginal willingness to pay that is important when determining the recipient who will produce the stronger effect (Blundell et al., 2005).

Although the economics literature has not attempted to disentangle how much the effect of transfers is due to the income versus the family process channel, there is evidence that the family process channel could be at play. Indeed, transfers have been found to reduce maternal depression (Milligan & Stabile, 2011) and the level of biomarkers associated with stress (Aizer, Stroud, & Buka 2016; Akresh et al., 2016; Evans & Garthwaite, 2014), increase psychological well-being (Haushofer & Shapiro, 2016), and reduce intimate partner violence (Hidrobo, Peterman, & Heise, 2016).26 An interesting issue for future research is how to incorporate these elements into a structural model that can decompose the effect of the transfers into the income channel, the family process, and other indirect effects such as those previously mentioned.

Conditional Cash Transfer Programs

Conditional cash transfer (CCT) programs pay cash benefits to households (usually to mothers) if certain prespecified conditions are fulfilled, typically regular attendance to preventive healthcare visits (mostly for younger children) and school attendance (for older children), although the specifics of the requirements vary across countries and programs (see Fiszbein et al., 2009). The objective of CCTs is not only to reduce poverty in the short term but also to increase investments in children’s human capital to reduce the intergenerational transmission of poverty.

After initial evaluations of large-scale CCT programs in Mexico, Brazil, and Colombia reported positive results in educational attendance and child health (Attanasio et al., 2005; Behrman & Hoddinott, 2005; Cardoso & Souza, 2009; Gertler, 2004; Schultz, 2004), CCT programs expanded quite rapidly, especially in Latin America but also in Africa and Asia. In most cases, they are targeted toward the poorest strata of the population.

If the only market failure is one of imperfect credit markets, UCTs are preferable to CCTs because they do not distort the allocation of expenditure. By imposing conditions, the policymaker is incentivizing the use of the goods/inputs that are required to fulfill the conditions of the transfer. The justifications for providing such incentives are that (a) parents underestimate the productivity of the inputs, (2) there is a mismatch between parents and children preferences (the parents’ rate of return to investing in their children is lower than the children’s rate of return) and children cannot commit to pay back the investment so parents underinvest, and (c) parents do not internalize the social benefit of investing in children’s health and education (e.g., improving child health could reduce the transmission of infectious diseases), and hence they underinvest in these inputs from a social point of view (Das, Do, & Özler, 2005). CCTs might also offer an advantage from the political economy point of view, as middle-class households might be more likely to support them than transfers with no strings attached.

Even in the presence of imperfect beliefs and externalities, the conditionalities embedded in CCT programs can create a tension with the redistributive (poverty reduction) motive that is also part of their remit. For instance, households that live further away from schools might be the poorest but also the ones for which it is costlier to fulfill the conditionality, and hence they might not end up receiving the cash transfer.27 These trade-offs could be mitigated by varying the transfer according to observable characteristics of the household, but this approach is rarely taken in practice. In any case, means-testing or proxy-means testing are usually used to improve the targeting of the program.

CCT programs are among the most studied, and there is a wealth of evidence on their effects. There is very consistent and robust evidence that CCT programs improve the uptake of preventive care services, but initially there was less confidence on the health impacts, partially because of the presumed poor quality of the preventive care services (Gaarder, Glassman, & Todd, 2010; Lagarde, Haines, & Palmer, 2007; Leroy, Ruel, & Verhofstadt, 2009). More recent reviews are more optimistic about the health and nutrition effects of CCTs (Owusu-Addo & Cross, 2014). Although most of the available evidence comes from Latin American countries, Kandpal et al. (2016) and Akresh et al. (2016) find positive effects on child health and nutritional outcomes in the Philippines and Burkina Faso, respectively. There is little evidence on the effect of CCTs on cognitive and socioemotional skills in early childhood, except for Macours, Schady, and Vakis (2012), who find encouraging positive effects from a CCT program in Nicaragua.28

An important issue is whether the conditionalities are important to explain the program impacts or otherwise where the same program effects could be obtained using UCTs of a similar size. Quasi-experimental studies from Colombia and Honduras that exploit eligibility rules in combination with program features find that the conditionality embedded in the programs is indeed important to explain the improvements in the use of preventive healthcare and health outcomes (Attanasio, Oppedisano, & Vera-Hernández, 2015; Benedetti, Ibarrarán, & McEwan, 2016).29 An experimental study in Burkina Faso that randomized the recipient (father or mother) and the nature (UCT or CCT) of the cash transfer also found that CCTs outperform UCTs in preventive healthcare use and children’s health outcomes (Akresh et al., 2016).

Another salient feature of CCTs is that, as in UCTs, the recipient of the transfer tends to be the mother rather than the father. Attanasio and Lechene (2010) have similar findings to those of Schady and Rosero (2008) but for a CCT. By randomizing the gender of the recipient across municipalities, Armand, Attanasio, Carneiro, and Lechene (2016) find that CCTs to women increase the food share and changes the slope of the Engel curve for some food items.

CCTs are often packaged interventions, apart from the cash transfer; they often lead to an increase in the uptake of preventive healthcare visits and to an increase in the household’s exposure to information on child health and development and even adult health. Disentangling what elements of the program are responsible for the observed impact can help to fine-tune programs and enhance the external validity of findings. However, this is challenging to do from an empirical point of view. An exception is Behrman, Parker, and Todd (2009), who use a matched comparison group and detailed information on program eligibility and participation to find suggestive evidence that the nutritional supplement distributed in the preventive healthcare visits was important to explain the reduction in the age at entering school in the Mexican CCT.30

In-Kind Transfers

Governments also rely on in-kind transfers as a policy tool to improve child development.31 The traditional justification for in-kind transfers is paternalism: the donors care directly about the recipient’s consumption of the subsidized good, which creates an externality. An unconstrained cash transfer might lead to underconsumption of the subsidized good. However, a large enough in-kind transfer can increase the consumption of the subsidized good.

Other arguments for in-kind transfers are to improve the targeting of the benefits. The characteristics of the subsidized good (or the cost of accessing the transfer) might be such that only the poor take it up: for instance, subsidized goods of substandard quality might be more likely to be bought by poor individuals. A different explanation is to increase the efficiency of the tax system by increasing the consumption of goods that are complements to the labor supply (Corlett & Hague, 1953, Blomquist, Christiansen, & Micheletto, 2010, Bastani, Blomquist, & Micheletto, 2017). Another rationale to justify transfers of goods that benefit children is to redistribute within the household, which can be justified if parents do not always make the best decisions on behalf of the children.

Examples of in-kind transfers to improve child development are childcare and parenting programs, previously reviewed. Food transfer programs are also very common.32 Their paternalistic rationale would be fulfilled if the household increases food consumption more than they would if the transfer was in cash. However, standard economic theory predicts that for inframarginal households (households whose food consumption is more than the transfer), the propensity to consume food from one unit of the cash transfer should be the same as to consume from one monetary unit worth of the food transfer. Consequently, inframarginal households should increase their overall food consumption but by less than the value of the food transfer, and their out-of-pocket expenditure on food will be reduced. This is in fact what Hoynes and Schanzenbach (2009) find for the Food Stamp Program (FSP), which provides food vouchers to disadvantaged households in the United States. Hoynes and Schanzenbach find that most households are inframarginal, and that the FSP transfer is a “near cash” transfer. On the contrary, both Beatty and Tuttle (2015) and Hastings and Shapiro (2018) find that the marginal propensity to consume food out of the benefits of the Supplemental Nutrition Assistance Program (the successor of FSP) is considerably higher than out of cash, even for infra-marginal households, which can be explained by a model of mental accounting.

Highlighting the importance of economic resources in pregnancy, Almond, Hoynes, and Schanzenbach (2011) find that exposure to the FSP toward the end of pregnancy increased birth weight, with larger effects at the bottom of the distribution. Hoynes, Schanzenbach, and Almond (2016) find that exposure to FSP in utero and up to five years of age leads to health improvements in adulthood (in particular, a reduction in metabolic syndrome conditions which include obesity, cardiovascular problems, and diabetes) and, for women, an improvement in economy self-sufficiency. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), a program that includes food benefits, education on health and nutrition, and referrals to other programs and agencies such as Medicaid, has been shown to improve pregnancy weight gain, birth weight, and the probability of breastfeeding initiation (Currie & Rajani, 2015; Hoynes, Page, & Stevens, 2011; Rossin-Slater, 2013), as well as receptive and expressive communication in early childhood (Bolbocean, Tylavsky, & West, 2018). As in the case of cash transfers, these effects might not only be due to the income effect of the transfer but also to the family process channel previously mentioned.

Food transfers are also very common in developing countries (see, e.g., Alderman, 2002). Cunha (2014) tests the paternalistic argument for in-kind transfers by analyzing the Mexican Program de Apoyo Alimentario that randomized 200 rural villages into an unrestricted cash transfer, an in-kind transfer (of 10 different goods), or no transfer. The paper does not find much support for the paternalistic justification: (a) the cash transfer is practically all consumed on “merit goods”: food, education-related expenses, medical fees, medicines, and hygiene products, with no increase in the consumption of unhealthy foods, sweet drinks, alcohol, and tobacco, and (b) the increase in food consumption was about the same for both types of transfers, so the in-kind transfer was inframarginal.33 The same result was found by Hidrobo et al. (2016), who randomized food transfers, cash transfer, and food vouchers across geographical clusters of communities of northern Ecuador.

Although in aggregate cash and in-kind transfers seem to have very similar effects, the question arises of whether this equivalence on the aggregate masks differences in food components. Cunha (2014) finds that if the amount of food received for a particular food was extramarginal, the recipients substituted away from similar nontransferred foods. Still, he finds that the in-kind transfer led to higher consumption of zinc and iron, although the differences were not enough to lead to better health, at least in the short term. Hidrobo et al. (2016) find that the vouchers led to an increase in dietary diversity (probably because the food vouchers were restricted to a list of nutritionally rich foods), and the food transfer led to a higher increase in calories (probably because most of the food items transferred were rich in calories, and, at the item level, they tended to be extramarginal). Currie and Gahvari (2008) also point out that WIC has larger effects on child nutrition that what would be achieved with a cash transfer of similar value (which would be fairly small).

A particular type of in-kind transfer is nutritional supplementation of pregnant women and young children. A challenge of this type of intervention includes sharing among household members and dietary crowding out; that is, the child receives less food because he or she is receiving supplements. However, the evidence indicates that nutritional supplementation is generally effective at improving health and nutritional indicators (Bhutta et al., 2013), with more mixed results on cognitive development. Two studies are worth mentioning because of their longer term duration: Field, Robles, and Torero (2009) find that iodine supplementation during pregnancy in Tanzania led to additional schooling (especially for girls), and Hoddinott, Maluccio, Behrman, Flores, and Martorell (2008) and Maluccio et al. (2009) find that a protein-rich supplementation also led to an increase in schooling for women, earnings for men, as well as on measures of cognitive skills for both women and men in Guatemala. Islam and Hoddinott (2009) use the same program from Guatemala to ascertain that, although there is some crowding out, most of the nutritional benefit of the transfer sticks to the beneficiary child.

Parental Leave

Many countries in the developed and developing world have legislation that ensures paid maternity leave (Addati et al., 2014).34 Maternity leave policies allow the mother to take time off work after the birth of a child.35 In inception the idea has been to allow mothers to recover from the strain of giving birth and to spend more time with her child in the first months of life.36 The right to paid leave and to return to one’s job after leave has been created to avoid the discrimination of women in the labor market and the potential for adverse selection if employees and employers were to write contracts allowing for maternity leave (Ruhm, 1998). The extension of benefits to fathers is relatively recent and has been motivated to promote the sharing of responsibilities in the household with a view at improving the position of women in the labor market (see, e.g., Ekberg, Eriksson, & Friebel, 2013).

The availability of parental paid leave is likely to affect child outcomes through three channels. First, it provides a subsidy for home care, incentivizing parents to spend more time with their children at a critical time in their development. It gives women the chance to initiate and maintain breastfeeding in the first months of life as well as promotes the attachment of children to their mother. Both aspects are considered important in the medical literature to foster child development (see Belsky, 1988; Bowlby, 1969; Kramer & Kakuma, 2009). Second, paid leave provides a source of income, which allows families to maintain the standard of living of the household during a period of no labor market activity. Third, to the extent that parental stress affects children, the availability of leave may contribute to child welfare. This might be critical toward the end of pregnancy in places where women are able to take time off work right before the arrival of a child (Van den Bergh, Mulder, Mennes, & Glover, 2005).

Parental leave policies have not been implemented in the same way around the world and over time. The two key aspects are the duration of the paid period and the income replacement ratio during the period of leave. For example, in 1977 Norway introduced 18 weeks of paid parental leave and extended job protection from 12 weeks to one year. From 1987 to 1992, there were a series of policy reforms that expanded paid leave from 18 weeks to 35 weeks. In the last 20 years there has been an explosion of studies that analyze the effect of parental leave on children outcomes, exploiting changes in policies (Carneiro, Løken, & Salvanes, 2015; Dahl, Løken, Mogstad, & Salvanes, 2016) and the availability of rich administrative data sets that allows creation of precise estimates in regression discontinuity designs.37

The evidence in favor of parental leave policies and their effect on child development tends to depend on the duration of the leave. Paid leave in the first three months of life is likely to lead to a reduction in perinatal mortality, neonatal deaths, and low birth weight (see Rossin, 2011; Ruhm, 2000; Stearns, 2015) and in the long run gains in education and earnings (see Carneiro et al., 2015). After three months of paid parental leave, most papers tend to show no benefits from parental leave in terms of early childhood development (Baker & Milligan, 2010), educational outcomes (Dahl et al., 2016; Danzer & Lavy, 2018; Dustman & Schönberg, 2012), and earnings (Dustman & Schönberg, 2012).

Overall, children from developed countries, where most employment is formal and employment laws are well enforced, are likely to benefit from paid leave during the first three months of life. However, except for the United States where paid leave is only available in some states, most developed countries already have paid leave (Addati, Cassirer, & Gilchrist, 2014). In these countries, the next frontier of research is to look at the contribution of fathers’ leave toward child development. Given the small impacts found after the first three months it seems unlikely, however, that big gains in child welfare will be uncovered. This, of course, does not detract from other merits that the policy may have in terms of contribution toward gender equality.38 It is also worth noting that in developed countries where low fertility is a concern, extensions in the duration of leave may be found beneficial (Lalive & Zweimüller, 2009) although child care subsidies may also play a role (Bauernschuster, Hener, & Rainer, 2016).

In developing countries implementing parental paid leave is rather complicated as a large share of workers are in informal labor contracts. In this case, the extension of paid parental leave will likely benefit formal workers only. If countries enact these policies through employment laws, it may have the unintended consequence of contributing toward discrimination of women in the formal labor market, as well as to the increase of informality. This is clearly a hard-balancing act.

Conclusions and Further Research

Much research has been done on the four policies reviewed here, and although there are some clear conclusions, there are still numerous issues that will benefit from more research. Much of the literature has recently focused on the effects of childcare, but the literature on the regulation of childcare providers has recessed in the last 10 years or so. The latter may gain some momentum in the near future. Technology could increase the observability of process quality (e.g., by recording activities or live streaming), and some governments are taking a more active role at disseminating information on the quality provided by childcare centers. This will also benefit researchers who might be able to make more accurate assumptions on what households know about the quality of the childcare setting. Other issues that require more research in the near future are the importance of peer effects in childcare settings, as well as complementary effects and linkages between structural and process quality, which are potentially very important because minimum quality standards usually only apply to structural quality.

Parenting interventions have shown promising results, but some can be costly because they use relatively high-skilled staff. How to make these policies more amenable to scaling up is an important topic of research (Attanasio, 2015). Group, instead of individual, based interventions will reduce the cost, but it is still unclear what the effects will be on the benefits, and they might have other effects apart from children development. Technology can also play a role, either by monitoring the provider or by directly providing information. The use of economic incentives to improve providers’ performance also needs very careful research given that it might lead to cream-skimming or have other unintended consequences. Although there is already some research attempting to disentangle the channels through which these interventions work, more research in the area is forthcoming, especially research that considers the interaction among parent, child, and provider.

It is increasingly recognized that transfers can benefit child development, not only because of their income effect but also because of their family process effect. The literature has reported examples of cash transfers that have improved family processes outcomes, such as stress and psychological well-being. However, there is need for work that attempts to decompose how much of the transfer is due to the income effect versus the improvement in family processes outcomes. This will be challenging, as researchers will need to specify how stress, psychological well-being, and related outcomes enter into the household decision problem, and possibly in the production function of human capital.


We are thankful to Raquel Bernal, Karen Macours, and Francesca Salvati for their comments on selected parts of this review. Any errors are the sole responsibility of the authors. The views expressed herein are those of the authors and should not be attributed to the Inter-American Development Bank, its executive directors, or the governments they represent.

Further Reading

Aizer, A., & Doyle, J. J. (2014). Economics of child well-being: Measuring effects of child welfare interventions. In A. Ben-Arieh, F. Casas, I. Frønes, & J. E. Korbin (Eds.), Handbook of child well-being (pp. 1563–1602). Dordrecht, The Netherlands: Springer.Find this resource:

Almond, D., Currie, J., & Duque, V. (2018). Childhood circumstances and adult outcomes: Act II. Journal of Economic Literature, 56, 1360–1446.Find this resource:

Attanasio, O. P. (2015). The determinants of human capital formation during the early years of life: Theory, measurement, and policies. Journal of the European Economic Association, 13(6), 949–997.Find this resource:

Baker, M. (2011). Innis Lecture: Universal early childhood interventions: What is the evidence base? Canadian Journal of Economics/Revue Canadienne d’économique, 44(4), 1069–1105.Find this resource:

Behrman, J. R., Engle, P., & Fernald L. (2013). Preschool programs in developing countries. In P. Glewwe (Ed.), Education policy in developing countries. Chicago, IL: University of Chicago Press.Find this resource:

Berlinski, S., & Espinoza, R. (2017). Early childhood: How can we support parents? In M. Busso, J. Cristia, D. Hincapié, J. Messina, & L. Ripani (Eds.), Learning better: Public policy for skill development (pp. 121–143). Washington, DC: Inter-American Development Bank.Find this resource:

Berniell, I., Mata, D. de la, & Machado, M. P. (2019). The Impact of a Permanent Income Shock on the Situation of Women in the Household: the Case of a Pension Reform in Argentina. Economic Development and Cultural Change.Find this resource:

Bhutta, Z. A., Das, J. K., Rizvi, A., Gaffey, M. F., Walker, N., Horton, S., . . . Black, R. E. (2013). Evidence-based interventions for improvement of maternal and child nutrition: What can be done and at what cost? The Lancet, 382(9890), 452–477.Find this resource:

Blau, D., & Currie, J. (2006). Pre-school, day care, and after-school care: Who’s minding the kids? In E. A. Hanushek & F. Welch (Eds.), Handbook of the economics of education (Vol. 2, pp. 1163–1278). Amsterdam, The Netherlands: Elsevier.Find this resource:

Carneiro, P., & Heckman J. (2003). Human capital policy. In J. Heckman & A. Krueger (Eds.), Inequality in America: What role for human capital policies? Cambridge, MA: MIT Press.Find this resource:

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(1.) In-home visiting programs meetings occur at the child’s home. However, in many programs training is provided in a community centers, childcare centers, or medical facilities.

(2.) A seminal paper in this area is the large randomized encouragement experiment in Belarus of Kramer et al. (2001). This study allocated a group of randomly chosen maternity hospitals and one affiliated polyclinic per hospital (where follow-ups were performed) to the UNICEF/WHO Baby Friendly Hospital Initiative while maintaining the status quo in a control group of hospitals and polyclinics. Exposure to the intervention led to a substantial increase in the duration of breastfeeding.

(3.) Not all interventions need to be costly to produce positive results. For example, York, Loeb, and Doss (2018) evaluate the effects of a low-cost eight-month text-messaging intervention for parents of preschoolers. The authors find that the interventions increased parental involvement at home and school by 0.15 to 0.29 standard deviations, leading to child gains in early literacy of about 0.11 standard deviations.

(4.) In the United States, the nurse-family partnership, which targeted disadvantaged first-time mothers, delivered a whole array of benefits for both the mother and the child (Heckman, Holland, Makino, Pinto, & Rosales-Rueda, 2017; Olds, 2006), but the benefits in European countries (so far, mostly focused on short-term outcomes) tend to be more limited (Doyle, Delaney, O’Farrelly, Fitzpatrick, & Daly, 2017; Doyle, Fitzpatrick, Lovett, & Rawdon, 2015; Robling et al., 2016, Sandner, Cornelissen, Jungmann, & Herrmann, 2018).

(5.) Berlinski and Espinoza (2017) also report on the cost of implementing some of these programs, which vary greatly from $14,000 of implementing center-based Early Head Start to around $1,700 for a curriculum based on Grantham-McGregor et al. (1991).

(6.) This associations are the results of meta-analysis or literature reviews, which often find positive effects interventions that have these characteristics.

(7.) Singh and Mitra (2017) also looks at the effect of offering wage incentives of different magnitude. They find that caregivers react more strongly to larger wage incentives.

(8.) Bhalotra, Delavande, Font Gilabert, and Maselko (2019) find substantial heterogeneity in mothers’ responses to whether breastfeeding is enjoyable or tiring; and whether playing with children is enjoyable or tiring.

(9.) In this experiment, 96 towns in Colombia were randomly assigned to four conditions: psychosocial stimulation through weekly home visits, micronutrient supplementation, both combined, and control. Around 1,400 children aged 12 to 24 months took part in the experiment for a period of 18 months. Attanasio et al. (2014) found significant positive impacts on cognitive and language (receptive and expressive) development as well as improvements in the quality of the home environment.

(10.) In particular, material investments seem to matter more for cognitive skills, while time investments seem to matter more for socioemotional skills.

(11.) Galiani et al. (2017) is an exception. The paper develops a model of parenting styles that highlights the importance of competition within the family. The rise in relative earnings of wives in the last 100 years increased competition between spouses for the love and affection of their children while the decline in family size reduced competition between children for resources from their parents. The combined effect has empowered children within the household and allowed them to capture an increasing share of the household surplus.

(12.) Mocan (2007) compares the quality ratings of trained observers with those of parents across 400 childcare centers in four U.S. states. He finds that parents do not utilize all available information when assessing the quality of a center. Interestingly, parents try to extract signals from observable center characteristics, but they make mistakes because they associate certain center characteristics with quality, and they fail to recognize other signals of quality.

(13.) Bernal et al. (2018) is an exception.

(14.) See for instance, Ramey and Campbell (1991), Barnett (1995), Karoly, Kilburn, and Cannon (2006), Heckman, Moon, Pinto, Savelyev, and Yavitz (2010a, 2010b), Campbell et al. (2014), Conti, Heckman, and Pinto (2016), and the reviews included in Currie (2001).

(15.) This also opens the possibility for the existence of peer effects. This is discussed later.

(16.) A recent experimental evaluation of Head Start had found less encouraging results (Puma et al., 2010). This seems to be due to the existence of close substitutes (Kline & Walters, 2016).

(17.) Research on the effects of center-based childcare in developing countries is still scant; see Behrman and Urzúa (2013) and Behrman, Engle, and Fernald (2013). A recent encouraging example is the randomized evaluation of the aeioTU nurseries in Colombia (Nores, Bernal, & Barnett, 2016); See Bernal et al. (2018) for an example of the challenges facing policymakers when trying to improve childcare quality in developing countries.

(18.) Using an unusual source of variation, the dip in childcare attendance in the summer months, Herbst (2013) finds that nonparental care harms the cognitive development of children aged 0 to 24 months in the United States.

(19.) Relatedly, using a cluster randomized trial in Pakistan, Baranov, Bhalotra, Biroli, and Maselko (2017) show that maternal mental health affects women’s financial empowerment and parenting decisions, including time and monetary parental investments.

(20.) The expected effects for secondary earners are more complex than for single mothers; see Eissa and Hoynes (2006) for a discussion.

(21.) Dahl and Lochner (2012) also highlight three characteristics of EITC transfers that might lead to larger effects on child development: (a) that they are usually received once a year as a lump sum, (b) that families may be more inclined to spend the funds on children because the benefit payments depend explicitly on having children in the household, and (c) that mothers may be more likely to have control of the money than fathers (compared, for instance, to male earnings), an issue that is discussed later.

(22.) Because EITC is conditional on the number of children, it could also lead to an increase in fertility, although the working requirement might more than offset this effect, especially for single mothers. Baughman and Dickert-Conlin (2009) find that EITC expansions lead to extremely small reductions in higher order fertility among White women, while González (2013) find increases in fertility in response to a Spanish child benefit via a reductions in abortions.

(23.) These recent papers tend to find larger effects than earlier research based on fixed effect estimators that assumed income changes to be exogenous. See Dahl and Lochner (2012) for a discussion.

(24.) For a much earlier period, Aizer et al. (2016) reports positive long-run effects of the Mother’s Pension program that was implemented in the United States between 1911 and 1935.

(25.) The transfers studies by Fernald and Hidrobo (2011), Paxson and Schady (2010), Macours, Schady, and Vakis (2012), and Amarante et al. (2016) were designed as conditional on preventive healthcare use, but they were not implemented as such, either because they were not announced to the public or because the conditions were not monitored. In some cases, the program also included information on nutrition, education, and health.

(26.) Baranov et al. (2017) shows that an intervention in Pakistan that reduced maternal depression also increased investments on child development.

(27.) Depending on the program, the conditionality might reinforce the redistributive element. For instance, richer individuals find workfare programs that pay to individuals who work in a community project less attractive (Das, Do, & Özler, 2005). In that case, the conditionality might serve to improve the targeting of the program.

(28.) Given the wealth of data on CCT programs, there is already some literature on the long-term effects of these programs; see Molina Millán, Barham, Macours, Maluccio, and Stampini (2018) for an up-to-date review.

(29.) Although they refer to children older than the remit of this review, it is worth noting that similar results on the importance of conditionality have been found for school attendance using both structural models that simulate UCT and compare them with CCTs, as well as experimental studies and studies that exploit different program features (Attanasio, Meghir, & Santiago, 2012; Baird, McIntosh, & Özler, 2011; Bourguignon, Ferreira, & Leite, 2003; de Brauw & Hoddinott, 2011; Schady & Araujo, 2008; Todd & Wolpin, 2006).

(30.) Structural models lend themselves nicely to this, but they have only been used to explain the educational outcomes of older children (Attanasio, Meghir, & Santiago, 2012; Todd & Wolpin, 2006). See Parker and Todd (2017) for a review of results on the widely studied Mexican CCT program.

(31.) There are other reasons to possibly justify in kind transfers: the Samaritan’s Dilemma, pecuniary effects, asymmetric information among agents, and political economy considerations. Currie and Gahvari (2008) expand on all these arguments, as well as the ones mentioned in this article, and discuss their empirical content.

(32.) School feeding programs are a specific type of in-kind transfer in developing countries (Alderman & Bundy, 2012 however, they are outside the scope of this review because of the age range of the recipients.

(33.) For the same program, Cunha, De Giorgi, and Jayachandran (2019) find that in-kind transfers led to lower local food prices, especially in less developed villages, which are less tied to the outside economy.

(34.) Among Organisation for Economic Co-operation and Development (OECD) countries, the average duration of maternal paid leave is 18 weeks, ranging from 6 weeks in Portugal at full income replacement rate to 43 weeks in Greece at an average 54% income replacement rate. The national U.S. policy is only of 12 weeks of unpaid parental leave. However, states and local government may have different rules (see OECD, 2017).

(35.) In some countries a short period of prebirth leave is compulsory. The ILO Maternity Convention, 2000 (No. 1983) stipulates at least 14 weeks of leave at a rate of least two-thirds of previous earnings (Addati et al., 2014).

(36.) In some settings also, particularly in the absence of a national health insurance system, it ensures access to antenatal care and the availability of prebirth leave.

(37.) These studies usually report intention to treat estimates. First, they show/assume that the policy was largely unanticipated by parents, leading to a sharp discontinuity in available leave around the threshold. Second, some studies show the extent to which the leave was taken up by parents. Third, they show the impact of the policy on treatment and control children independently of whether their parents took leave.

(38.) Bartel et al. (2018) reports that fathers do take up the leave, at least to some extent, when they are eligible for it.