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Transfers and Transformations: Remittances, Foreign Aid, and Growth

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  • Jonathan Temple

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  • Huikang Ying
  • Patrick Carter

Abstract

For many developing countries, international transfers are now a significant source of income. These transfers include official development aid, private charitable donations, and personal remittances. This paper uses dynamic one-sector and multi-sector models to isolate conditions under which transfers could promote growth and structural transformation. Although transfers bring welfare benefits, the effects on investment and growth are modest under isoelastic utility; where investment is profitable, it would be undertaken even in the absence of transfers. Larger effects on growth and sectoral structure emerge when preferences take the Stone-Geary form, since then low investment can co-exist with high returns to investment.

Suggested Citation

  • Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, Department of Economics, University of Bristol, UK, revised 02 Dec 2014.
  • Handle: RePEc:bri:uobdis:14/649
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    More about this item

    Keywords

    foreign aid; remittances; cash transfers; economic growth; structural transformation.;

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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