Monday, March 19, 2007

Now There’s a Thought for Smithian Growth

In the 19th March edition from the Foundation for Economic Education (FEE) under the heading, “Migrants Send More Money to Latin America than Foreign-Aid Donors Do”, we find this gem:

"The amount of money sent home by Latin American migrant workers to their families has reached more than $62bn. This figure now exceeds the combined total of all direct foreign investment and foreign aid to Latin America." (BBC News, Monday)

And it's not going to a government.”

For Smithian growth models that is interesting. Smith said that the initial source of capital accumulation necessary for sustained growth (and with it development) was from the savings of productive workers applied to investment.

The transfer of $62 billion from migrant workers in the US to Latin America, and the smaller amount from Polish migrants in Scotland to Poland, any percentage of which seeps into productive investment (putting labour to work in the recipient economies) will have growth inducing effects.

Growth is a slow and gradual process (recent rates in India and China are historically high), which over time, under compound interest multiplication, can double the GDP in 25 years when as low as about 2.5 per cent. Bypassing government sticky hands, via private persons is a unique opportunity for the recipient countries.

If it relieves local poverty as well, or instead, that too is all to the good on grounds of what Smith called 'common humanity'.


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