Does receiving a cash grant improve individual earnings in a war-torn country?  Evidence from a randomized experiment in Afghanistan

Background: In this paper, the effect of receiving a non-trivial cash grant and mentorship for business practice on individual earnings in Afghanistan was assessed. Methods: This randomized control trial(RCT) included 2177 individuals (n=2177), with the age range of 18-35 years. The amount of cash grant was approximately equal to the gross domestic product (GDP) per capita in the country (500 USD). By a process of lottery, eligible applicants were equally divided into the group that received the grant (treatment group) and the group that did not (control group). The regression estimation was conducted for the analysis. Results:The percentage of increased annual income to the size of this cash grant almost two years after this study was approximately 173 % and 69 % for males and females, respectively. This result was much higher than the estimated percentage reported in previous literature assessing the effect of microfinance loans and cash grants in other countries. The treatment group had a 7 percentage point higher probability of having an officially registered business than the control group. The treatment group also increased labor supply and employed additional workers, compared to the control group. The male treatment group bought more capital equipment (e.g., trike and commercial carts) than the male control group, while the female treatment group bought more domestic animals. Conclusion: A non-trivial cash grant has a strong positive effect on the earnings of the recipient of the cash grant in Afghanistan. If the state of increased income continues for the next few years, the sum of increased income will be more than the sum of the administration cost, the interest cost and the amount of cash grant given. It implies that the project passes the standard criteria to determine the appropriateness of government program. Additionally, we did not find any economically and statistically significant positive effect of mentorship on income.