Worker Remittances and Growth: The Physical and Human Capital Channels

Abstract

Remittances may have an impact on economic growth through channels to physical and human capital. We estimate two variants of an open economy model of these two channels consisting of seven equations using the general method of moments with heteroscedasticity and autocorrelation correction (GMM-HAC) with pooled data for four different samples of countries receiving remittances in 2003. The countries with per capita income below $1200 benefit most from remittances in the long run because they have the largest impact of remittances on savings. Their remittances account for about 2% of the steady-state level of GDP per capita when compared to the counterfactual of having no remittances. Their ratio of the steady-state growth rates with and without remittances is 1.39. Transitional gains are higher than the steady-state gains only for the human capital variables of this sample. As savings react much more strongly than investment an important benefit of remittances is that less debt is incurred and less debt service is paid than without remittances. The elasticity of the GNI/GDP ratio with respect to the remittance/GDP ratio is .002. All effects are much weaker for the richer countries.

Migration, Openness and the Global Preconditions of ‘Smart Development

“…As Taylor also pointed out in a number of other studies, especially in 1999, worker remittances are especially affecting the less developed sending countries by the multiplier effect, well-known in economics since the days of John Maynard Keynes (Taylor, 2006: 9). The optimistic view about worker remittances is also supported in the well-received comparative international study by Ziesemer, 2009: in this analysis, the author shows with pooled data for four different samples of countries receiving remittances in 2003 that the countries with per capita income below $1,200 benefit most from remittances in the long run because they have the largest impact of remittances on savings. Their changes in remittances account for about 2% of the steady-state level of GDP per capita when compared to the counterfactual of having no changes of remittances.…”

Inward Remittances, Banking Sector Development and Economic Growth in Nigeria (1981 – 2015): The Missing Link

“…According to Ziesemer (2007), inward remittances can affect the rate of capital accumulation in domestic economies in various ways. First, inward remittances can directly finance productive investment.…”

Human Capital Development in South Asia:

“…By reducing liquidity constraints, remittance income may improve domestic investment on physical capital, as well as on human capital of household members, and therefore positively affect economic growth (Pradhan et al 2008, Jongwhanich 2007 Ziesemer (2009) found that a 1 percentage point increase in remittance-to-GDP ratio is associated with a 0.7 percentage point increase in savings.…”