Besides foreign direct investment (FDI) and capital market flows, workers’ remittances are another external channel for capital flows. According to the OECD, remittances to developing countries amounted to US$ 149.4 billion in the year 2002. However, whereas FDI and capital market flows are subject to variation due to recessions in home countries, remittances are steadily rising every year (OECD, 2006), reaching an amount of about UD$ 300 billion in the year 2007 (Barajas et al., 2009). To give a brief definition, remittances are money transfers from migrants working abroad to their families in their home countries. Yet, the question is, do these remittances contribute to or boost economic growth in receiving countries or are they only a means to increase the migrants’ families’ welfare by directly reducing their poverty and raising the living standard (Rao and Hassan, 2011). In other words, are remittances mostly used for consumption or do they rather flow in education, and thereby contribute to the human capital, and in investments, thus increasing the capital stock in the economy (Giuliano and Ruiz-Arranz, 2009)? From the growth theory we know that consumption does not have any impact on growth, only investments, either in production or in human capital, can affect long-run growth. Evidence from Indonesia, Ecuador, and Argentina (Sayan, 2006) shows that remittances indirectly reduce volatility of growth of output in times of crises and increase the growth rate thereby (Rao and Hassan, 2011). In contrast, Sayan (2006) found that remittances are moving procyclically with out in recipient countries, boosting incomes during booms, but reducing them even more during recessions and thus magnifying the economic crisis. This paper examines the relationship between remittances and GDP growth using in a macro panel with 67 countries and a time period of 28 years, from 1975 through 2002, as well as a cross-section analysis for comparison. The goal of this analysis is to determine whether, and to what extent, remittances have an impact on long-term economic growth and, if so, whether this relation is significant or not.
Table of Contents
1. Introduction
2. Idea of the Growth Theory
3. Data
4. Model and Empirical Analysis
4.1 Results
5. Concluding remarks
Research Objectives and Key Themes
This paper investigates the relationship between workers' remittances and GDP per capita growth across a sample of 67 developing countries over a 28-year period (1975–2002), aiming to determine whether remittances significantly contribute to long-term economic growth or are primarily utilized for consumption.
- The impact of migrant remittances on the economic growth of receiving nations.
- Theoretical examination of the growth effects of investments versus consumption.
- Comparative analysis using both cross-sectional and panel data methodologies.
- Addressing empirical challenges such as endogeneity and heterogeneity across countries.
- Evaluation of different estimation methods including OLS, fixed effects, and mean group estimators.
Excerpt from the Book
1 Introduction
Besides foreign direct investment (FDI) and capital market flows, workers’ remittances are another external channel for capital flows. According to the OECD, remittances to developing countries amounted to US$ 149.4 billion in the year 2002. However, whereas FDI and capital market flows are subject to variation due to recessions in home countries, remittances are steadily rising every year (OECD, 2006), reaching an amount of about UD$ 300 billion in the year 2007 (Barajas et al., 2009). To give a brief definition, remittances are money transfers from migrants working abroad to their families in their home countries. Yet, the question is, do these remittances contribute to or boost economic growth in receiving countries or are they only a means to increase the migrants’ families’ welfare by directly reducing their poverty and raising the living standard (Rao and Hassan, 2011). In other words, are remittances mostly used for consumption or do they rather flow in education, and thereby contribute to the human capital, and in investments, thus increasing the capital stock in the economy (Giuliano and Ruiz-Arranz, 2009)?
From the growth theory we know that consumption does not have any impact on growth, only investments, either in production or in human capital, can affect long-run growth. Evidence from Indonesia, Ecuador, and Argentina (Sayan, 2006) shows that remittances indirectly reduce volatility of growth of output in times of crises and increase the growth rate thereby (Rao and Hassan, 2011). In contrast, Sayan (2006) found that remittances are moving procyclically with out in recipient countries, boosting incomes during booms, but reducing them even more during recessions and thus magnifying the economic crisis.
Summary of Chapters
1 Introduction: This chapter introduces the research context, defines workers' remittances, and outlines the core objective of analyzing their impact on long-term economic growth in developing countries.
2 Idea of the Growth Theory: This section provides a theoretical foundation based on the neoclassical Solow growth model, highlighting that long-term growth is driven by investment rather than consumption.
3 Data: This chapter describes the dataset of 67 developing countries used for the analysis, including details on dependent and control variables like inflation, openness, and human capital.
4 Model and Empirical Analysis: This section details the methodology, specifically the split-period OLS estimations and panel framework, followed by the presentation of empirical results.
5 Concluding remarks: This chapter summarizes the findings, noting the variations across estimation methods and emphasizing the complexity of the relationship between remittances and economic growth.
Keywords
Workers' Remittances, GDP per Capita Growth, Macro Panel Analysis, Economic Growth, Neoclassical Growth Theory, Investment, Consumption, Endogeneity, Cross-Section Analysis, Fixed Effects, Mean Group Estimator, Human Capital, Developing Countries, Financial Flows, Macroeconomics.
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines whether workers' remittances serve as a catalyst for economic growth in the countries receiving them or if they are mainly used to boost family welfare through increased consumption.
What are the primary themes discussed in the study?
The study centers on growth theory, the role of investment versus consumption, empirical panel data analysis, and the influence of remittances on GDP per capita.
What is the main research objective?
The goal is to determine if there is a significant, positive relationship between remittances and long-term economic growth in a sample of 67 developing countries over the period 1975–2002.
Which scientific methods are employed for the analysis?
The author uses a combination of cross-sectional OLS estimations and a panel data framework, incorporating various estimators such as pooled OLS, fixed effects, and mean group estimators.
What topics are covered in the main body of the paper?
The main body covers the theoretical neoclassical growth model, a detailed description of the data used from the WDI, the empirical model specification, and a comparison of results from different estimation techniques.
Which keywords define this work best?
Key terms include Workers' Remittances, GDP per Capita Growth, Panel Analysis, Economic Growth, Investment, and Developing Countries.
How does the author address the issue of endogeneity?
The author acknowledges that simple OLS regressions may suffer from endogeneity and consequently implements a panel framework to provide more robust results.
What are the implications of the findings regarding remittances?
The findings are mixed; while fixed-effects models show a positive impact, other estimators yield insignificant or negative results, suggesting that the impact of remittances is heterogeneous and depends on how they are utilized within the country.
- Quote paper
- Anna Miller (Author), 2013, Do Workers' Remittances Bring Economic Growth to Receiving Countries?, Munich, GRIN Verlag, https://www.grin.com/document/214528
