Cash Transfers in Developing Countries: Local Multipliers, Aggregate Effects, and External Adjustment

This paper studies the local and aggregate effects of cash transfers in developing countries, and how both change as the cash transfer program scales up. We build a two-region New Keynesian small open economy model and calibrate it to rich pre-treatment microdata from an ongoing cash transfer experiment in Malawi. The model implies a local multiplier on temporary transfers of about one, which depends on price stickiness, the share of liquidity-constrained households, and home bias in consumption. Spillovers to the rest of the country are negative under Malawi's restricted international capital mobility and parallel exchange rate regimes, as cash transfers appreciate the real exchange rate and reduce exports. Consequently, the aggregate multiplier is less than the local multiplier. As the program scales up, the local multiplier converges toward the aggregate multiplier, so a scaled-up program may have smaller multipliers than micro-level estimates suggest. However, with unrestricted capital mobility, spillovers can be positive, especially under a fixed exchange rate. These results highlight the importance of the macroeconomic policy environment for aggregate multipliers and the effects of scaled-up transfer programs.

Suggested citation:

Mendes, Arthur, Wataru Miyamoto, Thuy Lan Nguyen, and Steven Pennings. 2026. "Cash Transfers in Developing Countries: Local Multipliers, Aggregate Effects, and External Adjustment." Federal Reserve Bank of San Francisco Working Paper 2026-22. https://doi.org/10.24148/wp2026-22