Unilateral International Transfers and their Effects on the Welfare of the Recipient and Donor Countries

This paper analyses impacts of unilateral income and capital transfers on welfare and terms of trade of the recipient and donor countries within a two-country framework. Introduction of the external economies of scale, helps in explicitly incorporating the differences in factor endowment between developed and developing economies in the analysis. The paper discusses the conditions under which unilateral capital transfer from a developed country may yield paradoxical result, i.e. immiserize the developing country, despite market stability. The analysis reinforces Brecher and Choudhri’s analytical support to Singer-Prebisch thesis from a new angle.