Liquidity Constraint Neutrality in Student Dropout Dynamics
RCTClinical Trial
Policymakers frequently assume high school dropouts stem primarily from household financial constraints, leading to heavy investment in student cash transfer programs.
Picture this
Providing small monetary stipends to students does not increase graduation because adolescent dropout decisions are driven by high immediate opportunity costs (such as low-skill employment options) and accumulated academic deficits rather than short-term cash flow. It is like offering a minor bus fare discount to factory workers when competing employers nearby offer dramatically higher wages; the small subsidy fails to alter their decision to leave.
What the evidence says
Targeted and untargeted cash scholarship interventions produced a precisely estimated null effect (0 percentage point impact) on high school graduation rates.
- Who was studied
- National cohorts of Mexican public upper secondary students (grades 10–12).
- How
- Randomized controlled trials and econometric evaluations analyzing student scholarship programs (PROBEMS and Prepa Sí).
What to do
Reallocate financial resources from broad secondary student scholarships toward targeted academic remediation and structural dropout prevention.
From the source
"Dustan (2018) and de Hoyos, Attanasio and Meghir (2019) provide rigorous evidence that two scholarship programs - 'PROBEMS' and 'Prepa Si' - had, on average, a precisely estimated null effect on proxies for high school graduation."
Addressing High School Dropouts with a Scalable Intervention: The Case of PODER