The Effect of Transfer Payments on Economic Growth: Panel Data Analysis for Developing Countries for 1990-2011

The aim of this paper is to empirically test the relationship between government transfer payments and economic growth. For that purpose, we employ rarely studied 1990-2011 data of developing countries and estimate panel data after debates about the definition and the scope of transfer payments. In the design of the empirical model, we set up a model by considering revenue budget in order to eliminate the lack of literature. On the contrary to some previous studies in which transfer payments are asserted as productive, our results suggest that; transfer payments have no significant effect on economic growth in developing countries. Our results also confirm neoclassical growth theory which upholds that fiscal policies do not affect growth rates.