Given the persistent problems in the balance of trade in LDCs, the limited effect of foreign aid, and the difficulties of borrowing, the often huge amounts of migrant remittances can substitute for the inadequacies of these forms of foreign exchange. As market flows of foreign exchange, remittances have complex positive and negative effects on development. In this paper, I deal with this role of migrant remittances in the theoretical framework of development economics, as related to the importance of foreign exchange as an indispensable factor of growth and structural change in LDCs. Various channels transmitting the impact of remittances on development are investigated based on the experience of countries from both sides of the Mediterranean basin.
I. Introduction There is an ongoing debate on how the often voluminous migrant remittances are used and to what extent they contribute to the development of the migrant's country of origin. There are surveys on how remittance recipients spend their income and discussions on how effective government policies are in attracting remittances. In fact, there is quite a literature, often negative, concerning the contribution of remittances to productive investment. This literature looks at remittances in a variety of ways. Concerning the substance of the inquiry, some of the writers investigate the impact of remittances as a compensating factor for the losses of the human capital invested in emigrants or, in a more general way, as a parameter in the overall impact of migration.' Others discuss the impact of remittances alone, separated from the impact of migration flows.2 From a methodological point of view, some of the theoretical analyses are cast in macroeconomic terms and are based on a tradednontraded goods model, in which labor is exchanged for remittances, whereas capital is i m m~b i l e .~ Other writers examine the welfare effects of remittances alone or jointly with the effects of rnigrati~n.~ Most of this literature, however, focuses on the first round of remittance spending and ignores the diffused multiple effects, thus producing inconclusive evidence on the impact of remittances on the economy .5 There is, in particular, little specific research on how aggregate output and employment are affected, and very limited sectoral and regional investigation of the issue.6 This article attempts a disaggregated sectoral analysis of the income effects of remittances on consumption, production, imports, em
This paper makes the point that migrants have different motives for sending remittances and remittance receivers have different claims on migrants' income, depending on whether people move to accumulate capital to improve their living at home after they return -temporary migration -or to start a new life in a foreign country -permanent migration. This hypothesis is empirically tested with data from Greek-German and Greek-Australian migration. The findings attest to the fact that German remittances constitute obligatory income streams to close family at home, while Australian remittances are gifts. Some quantitative estimates of the relative impact of individual factors on remittances are also obtained. Some hints are also given for a changing remitting behaviour of Greek migrants in Germany, along with the changing character of migration in that country.
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