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Growth with Endogenous Migration Hump and the Multiple, Dynamically Interacting Effects of Aid in Poor Developing Countries

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Author Info
Ziesemer, Thomas () (UNU-MERIT, and Maastricht University)

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Abstract

We show empirically that aid given to poor developing countries enhances growth and reduces emigration once several dynamically interacting effects of aid are taken into account in a system of equations. We estimate equations for net immigration flows as a share of the labour force and GDP per capita growth and also for all their regressors including remittances and official development aid. We use dynamic panel data methods for a sample of poor countries with GDP per capita below $1200 (2000) for which aid is about 9.5% of GDP. The partial effects in these regressions are as follows. Remittances enhance net immigration, savings, public expenditure on education and growth, but reduce tax revenues, all as a share of GDP. Net immigration enhances labour force growth and the savings ratio. Official development aid decreases the savings ratio and the per capita GDP growth rate, but it increases investment, public expenditure on education and literacy and also labour force growth. Then we integrate all equations to a dynamic system and run a simulation. The result is an endogenous migration hump with several peaks. In a counterfactual simulation we double aid with the result that for more than a hundred years migration is reduced and the GDP per capita is enhanced, because the positive effects of aid on investment and education dominate the negative direct effects of aid on growth and the unfavourable effects on savings, tax revenues, and labour force growth.

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Paper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number 057.

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Date of creation: 2008
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Handle: RePEc:dgr:unumer:2008057

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Related research
Keywords: International Migration; Remittances; Aid; Growth;

Find related papers by JEL classification:
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
F24 - International Economics - - International Factor Movements and International Business - - - Remittances
F35 - International Economics - - International Finance - - - Foreign Aid
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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