16 March 2009

More cash dropping from helicopters

Matt doesn't think that cash handouts can lead to long-term growth. A cynic might argue that neither does conventional aid. I also agree that targeted handouts could encourage dependency and moral hazard – that's why you'd need either conditional transfers like PROGRESA, or else just completely random/universal transfers.

In the nick of time, one of my very favourite irregular macroeconomist bloggers, Younotsneaky! links to a slightly old paper on the use remittances by individuals in Bangladesh. Much of it goes on investment, which of course potentially means an impact on growth. Of course remittances might not be the same as a completely free cash handout, there might be some moral obligation to use them more wisely, but the figures are interesting nonetheless.

1 comment:

Matt said...

Good stuff but I'll continue to play the cynic for a bit:

"The main shortcoming here is that the remittances which BMET keeps track of are only the official ones sent by "short-term" migrants (mostly to select Middle East countries)."

These remittances are short term (one could argue one-off, or at least limited) shocks to income. If you believe at all in the permanent income hypothesis, the large investment we're seeing here could just be the result of a transitory shock to income (hence a large hunk of it was saved).

The same thing happened recently in Australia when the government had a go at stimulating the economy by depositing money directly in people's current accounts, and they saved most of it!

Regular cash-handouts are a permanent increase in income, and might result in a totally different adjustment.

Also note that 30% of that is going to investment in land. While that's great for food security, there aren't many countries that have developed through agriculture.

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