When cash enters local markets: local economic spillover effects of cash transfers, remittances, and insurance

Insurance payouts, remittances, and government cash transfers all share one feature: they inject cash into local markets. While these interventions typically aim to improve the welfare of recipients, they can also affect the economic welfare of non-recipients. Yet our understanding of such economic spillover effects remains limited. Empirical studies report mixed findings, ranging from welfare-increasing to welfare-decreasing spillover effects, while the theoretical literature discussing potential mechanisms remains fragmented and lacks an integrated framework. This study develops a structured conceptual synthesis that integrates dispersed theoretical and empirical insights on the spillover effects of cash injections. We first develop a unified theoretical framework identifying the key mechanisms and moderating factors shaping spillovers, and then review the empirical literature through its lens. The framework highlights that spillover effects emerge through changes in local prices, wages, and resource sharing within social networks. We further show that the magnitude and direction of these effects depend on the interaction between cash-injection-specific parameters and the local environment, including its local economic structure and the constraints that recipient and non-recipient households face. By integrating insights across studies on cash transfers, remittances, and insurance programs, the paper provides a conceptual foundation for understanding spillover patterns of cash injections more broadly. Our analysis generates policy-relevant insights and highlights several important gaps in the current literature.