What Is a Unilateral Transfer?

A unilateral transfer is a one-way transfer of money, goods, or services from one party to another. It is often used to describe payments made by a government to their citizens, or from one country to another country in the form of foreign aid. In these cases, the supplier of funds receives nothing in return from the recipient.

A unilateral transfer can be contrasted with bilateral trade, which involves reciprocal economic benefit for both parties to a transaction.

Key Takeaways

  • Unilateral transfers involve sending funds, goods, or services to a receiving party, who does not return anything in kind.
  • Unilateral transfers are common in countries directing foreign aid, often from developed to less developed nations.
  • On the surface, unilateral aid programs are designed to spread economic growth, development and democracy. In reality, many are given strategically as diplomatic tools or handsome contracts to well-connected businesses.
  • Critics argue direct aid to foreign governments can be misused for corrupt or oppressive purposes.

Understanding Unilateral Transfers

Unilateral transfers occur frequently as gifts in every day life. This can be contrasted with bilateral transfers, a mutual exchange of goods, money, or services. A birthday gift or wedding present are examples where nothing is expected in return. Donations to charities or other forms of philanthropy can also be construed as a unilateral transfer, although some such donations may receive tax benefits. Governments may hand out unilateral transfers in the form of economic stimulus, for instance in the checks sent to American families during the COVID19 pandemic in early 2020.

Unilateral transfers sent by governments are included in the current account of a nation's balance of payments. They are distinct from trade transactions, which are bilateral in that both parties receive something. Unilateral transfers encompass things such as humanitarian aid and payments made by immigrants to their native countries.

Unilateral transfers thus are often involved in instances of direct foreign aid. Unilateral aid occurs when one government directly transfers money or other assets to a recipient country. Critics have argued, however, that direct foreign aid can be problematic and lead to negative unintended consequences. For instance, direct cash sent to Africa has been "an unmitigated economic, political, and humanitarian disaster," as written by Zambian-born economist and World Bank consultant Dambisa Moyo in her book "Dead Aid: Why Aid Is Not Working and How There Is a Better Way to Help Africa." Foreign governments are often corrupt and use foreign aid money to bolster their military control or to create propaganda-style education programs instead of using it to help their population.

Example

A U.N. shipment of food aid to North Korea to help feed their population is an example of a unilateral transfer of goods. The government of North Korea sends nothing back to the U.N. By contrast, a bilateral transfer or trade involves would involve the North Korean government paying for the food, or else exporting some other goods in return.