How widespread are nonlinear crowding out effects? The response of private transfers to income in four developing countries

This article investigates the relationship between household income and private transfers received in developing countries. If private transfers are unresponsive to household income, there is less likelihood of expansions in public social security crowding out private transfers. Most literature finds that private transfers are unresponsive, but this may be because responses have been obscured by the methods that ignore nonlinearities. Threshold regression techniques find such nonlinearity in the Philippines and scope for serious crowding out, with 30-80% of private transfers potentially displaced for low-income households (Cox et al., 2004). To see if these nonlinear effects occur more widely, semiparametric and threshold regression methods are used to model private transfers in four developing countries - China, Indonesia, Papua New Guinea and Vietnam. The results reported in this article suggest that nonlinear crowding out effects are not important features of transfer behaviour in these countries. The transfer derivatives under a variety of assumptions only range between 0 and -0.08.