Growth with Endogenous Migration Hump and the Multiple, Dynamically Interacting Effects of Aid in Poor Developing Countries
Thomas Ziesemer
#2008-057
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.
JEL code: F22, F24, F35, F43, O11
Key words: International Migration, remittances, aid, growth
UNU-MERIT Working Papers
ISSN 1871-9872