We show that the importance of flexible labor supply in determining the impact of foreign transfers depends upon whether the transfers are untied or tied to productivity enhancement. This is because the transfer has both a wealth effect and a relative price effect, the relative importance of...

This paper employs a dynamic two-sector dependent-economy model to study the impact of foreign transfers on a country's aggregate economic performance, as well as its distributions of wealth, income, and welfare. The transfers may be allocated to debt reduction, or to the productivity...