Remittances, economic complexity, and new firms’ creation: empirical evidence from a large sample of countries

Abstract

One of the most debated issues in migration economics regards the effects of remittances in receiving countries. In this paper, we test whether the economic complexity of a country is relevant for understanding the impact of remittances on new firms’ birth. We find evidence that the impact of real per capita remittances on new firms’ creation is inversely mediated by economic complexity. More (less) complex economies generate opportunities to found new firms which need high (low) funding. Since economic complexity is positively correlated with economic development, remittances are more likely to facilitate the establishment of new firms in less developed economies rather than in more advanced ones. We also examine the link between remittances and new firm creation for Africa, Asia, Europe, and Latin America and the Caribbean countries, finding very heterogeneous patterns. Hence, policy implications aiming at attracting remittances to create new firms should respond to the challenges posed by specific countries and be tailored to their peculiar needs. Countries of origin should build institutions and facilitate the creation of networks to bridge the diaspora abroad with their home country to increase awareness of new business opportunities. Policy initiatives could spur investment in the formal economy by making regulations less stringent, discouraging the use of remittances for consumption purposes, reducing informality, improving competition, reducing remittance transfer costs, and giving incentives to new firms created through remittances.