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Macroeconomic Consequences of Remittances

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  • Connel Fullenkamp
  • Thomas F. Cosimano
  • Michael T. Gapen
  • Ralph Chami
  • Peter Montiel
  • Adolfo Barajas

Abstract

Given the large size of aggregate remittance flows (billions of dollars annually), they should be expected to have significant macroeconomic effects on the economies that receive them. This paper directly addresses the two main issues of interest to policymakers with regard to remittances--how to manage their macroeconomic effects, and how to harness their development potential--by reporting the results of the first global study of the comprehensive macroeconomic effects of remittances on recipient economies. In broad terms, the findings of this paper tend to confirm the main benefit cited in the microeconomic literature: remittances improve households' welfare by lifting families out of poverty and insuring them against income shocks. The findings also yield a number of important caveats and policy considerations, however, that have largely been overlooked. The main challenge for policymakers in countries that receive significant flows of remittances is to design policies that promote remittances and increase their benefits while mitigating adverse side effects. Getting these policy prescriptions correct early on is imperative. Globalization and the aging of developed economy populations will ensure that demand for migrant workers remains robust for years to come. Hence, the volume of remittances likely will continue to grow, and with it, the challenge of unlocking the maximum societal benefit from these transfers.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Occasional Papers with number 259.

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Length: 92
Date of creation: 11 Mar 2008
Date of revision:
Handle: RePEc:imf:imfocp:259

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Keywords: Capital inflows; Debt sustainability; Economic growth; Economic models; Income; Labor markets; Migration; Real effective exchange rates; Workers remittances; remittances; workers? remittances; remittance; remittance flows; exchange rate; taxation; compensation; migrant; employee compensation; real exchange rate; capital flows; labor income; remittance receipts; remitter; benefits; effects of remittances; remittance inflows; private capital flows; increase in remittances; uses of remittances; increase in remittance; government spending; impact of remittances; international migration; private capital; effects of remittance; wage; budget constraint; remittance recipients; macroeconomic effects of remittances; tax base; flow of remittances; effect of remittances; tax system; remitters; remittance flow; remittance transfers; migrant remittances; government budget; government budget constraint; remittance data; tax rates; wages; tax structures; exchange rates; effective exchange rate; real effective exchange rate; wage rate; real exchange rate depreciation; exchange rate depreciation; impacts of remittances; inflow of remittances; remittance-receiving households; data on remittances; inflows of remittances; immigrant remittance; benefits of remittances; salaries; uses of remittance; migrant transfers; exchange rate appreciation; private capital inflows; real exchange rate appreciation; labor migration; tax structure; tax systems; remittance channel; migrants? remittances; private flows; government spending shocks; compensation of employees; emigrant remittances; fiscal space; worker; absence of remittances; measurement of remittances; average remittances; growth rate of remittances; decline in remittances; remittance transfer; analysis of remittances; exchange rate regime; country remittance; impact of remittances on growth; economic implications of remittances; migrant workers? remittances; determinants of remittances; role of remittances; migrant households; coefficient on remittances; remittance activity; flows of remittances; economic impact of remittances; personal remittances; public expenditure; account deficits; outward remittances; amount of remittances; government expenditures; effect of remittance; private transfers; international remittances; current account balance; real exchange rates; exchange rate overvaluation; real exchange rate overvaluation; migrant workers; return migration; international migrant; labour migration; fiscal policy; tax policy; tax reductions; expenditure increases; high remittances; amount of remittance; exchange rate misalignment; importance of remittance; exchange rate shocks; remittances flow; remittances data; bilateral remittance; domestic remittance; contribution of remittances; remittance inflow; costs of remittances; fiscal constraints; importance of remittance flows; fiscal consolidation; send remittances; debt service; changes in remittance flows; currency units; effect of remittances on growth; volume of remittances; distribution of remittance flows; volatility of inflows; distribution of remittance; global remittance; growth of remittance; recipient of remittance; remittance taxes; value of remittances; remittance recipient; remittance systems; use of remittances; high levels of remittances; remittance use; remittances transfers; wage rates; economic consequences of remittances; worker remittances; importance of remittances; growth of remittances; remittance transaction; floating exchange rates; real exchange rate changes; tax income; tax revenue; exchange rate flexibility; recipients of remittances; fixed exchange rates; public finance; tax wedge; tax increase; fiscal policies; government revenue; tax revenues; mexican immigrants; official flows; exchange rate changes; optimal exchange rate regime; international migrant workers; temporary migration;

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