Policy to promote overseas migrant work: A macro-dynamic framework

Could the policy to promote overseas migrant work be to blame for the sluggish development in some South Asian countries? I employ a macro-dynamic model of two small open economies to examine the policy of the developing, labor-exporting country to promote migrant work in a rich, labor-importing economy. The results from calibration exercises show that remittances received from migrant workers are expansionary through its collateral impact. However, the loss of labor due to the policy hinders capital accumulation in the poor country; as a result, it reduces income in the long run. Welfare, however, increases due to the increase in consumption stimulated by the increase in remittances. The impacts are more pronounced for a poorer country such as Nepal whose remittance receipts amounted to more than 30 percent of GDP.