Abhijit Banerjee, Nobel Prize in economics: ‘There are important things that cannot be solved just with a money transfer ’

Abhijit Banerjee, co-founder and co-director of the Abdul Latif Jameel Poverty Action Lab (J-PAL) and Nobel laureate in economics, discusses Kenya's 12-year universal basic income (UBI) scheme, and the perceptions, shortcomings and outcomes of cash transfers.

Abhijit says: “In many, many, many studies we have found the same thing, that when these people can access money they allocate a large part of it to do the things we consider right, such as investing in education or nutrition. What makes them have self-destructive behaviour is precisely not having money; when they do have it, they become more optimistic and show a greater willingness to do things that are good in the long term.”


The experiment took place in Kenya and involved two groups of poor people chosen at random. Those in group A would receive a fixed payment every month for 12 years. Those in group B would be given the same monthly stipend but only for two years. Which of the two groups would be more likely to invest? Abhijit Banerjee, 63, was one of the people in charge of the experiment, and he was expecting to find more investors among those in group B. His reasoning was the following: in group B, where payments would end after two years, the urgency to develop a business venture allowing people to maintain the same level of financial well-being must surely be greater than in A, where the 12 years of payments would provide some peace of mind to the recipients.

As the reader may have already imagined, the result was just the opposite. “We were surprised to find that the people whose monthly payments lasted the longest were also the ones who invested the most,” Banerjee said in an interview with EL PAÍS during a recent visit to Madrid to talk about poverty at the Ramón Areces Foundation. Peace of mind was the key variable, yes, but not because it caused inaction, rather the opposite: the guarantee that payments would continue to arrive for 12 years worked as the safety net that allowed people to try out business ventures.

After more than 20 years devoted to the subject, Banerjee is no newcomer to the field of poverty alleviation. In 2019 he received the Nobel Prize in economics together with his wife, Esther Duflo, and the academic who inspired them both, Michael Kremer, for their research on poverty following the method that the pharmaceutical industry uses to develop medicines: randomised controlled trials (also called RCTs) in which there is a treatment group and a control group to compare measurements.

El País