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Remittances, Migration and Informality in Mexico. A Simple Model

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  • Brambila Macias, Jose

Abstract

In this paper, we analyse the possible channels through which informality, remittances and migration could interact and consequently affect growth in Mexico. In order to do so, we develop a simple endogenous growth model that allows for remittances and the coexistence of the formal and informal sector in the production function. In the literature, there is no agreement regarding the effects of the informal sector on economic growth. Moreover, thanks to globalization, migration and remittances have increased significantly their macroeconomic weight, renewing interest in studying the interactions that these variables might have, especially in developing countries like Mexico, where remittances are the third source of income after oil and tourism revenues. Our model shows that remittances play a crucial role on enhancing the Mexican resource constraint, while the possibility of migration in the informal sector drains the aggregate labor force. However, the magnitude of potential remittances may offset this loss, thus having an overall positive effect on economic growth.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8373.

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Date of creation: 31 Mar 2008
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Handle: RePEc:pra:mprapa:8373

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Keywords: Growth; Informal Sector; Migration; Remittances;

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  1. Chaudhuri, Kausik & Schneider, Friedrich & Chattopadhyay, Sumana, 2006. "The size and development of the shadow economy: An empirical investigation from states of India," Journal of Development Economics, Elsevier, Elsevier, vol. 80(2), pages 428-443, August.
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  3. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 45(1), pages 129-162, December.
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  8. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
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  10. Mountford, A., 1995. "Can a brain drain be good for growth?," Discussion Paper, Tilburg University, Center for Economic Research 1995-8, Tilburg University, Center for Economic Research.
  11. McCormick, Barry & Wahba, Jackline, 2000. "Overseas Employment and Remittances to a Dual Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(463), pages 509-34, April.
  12. Norman Loayza & Pablo Fajnzylber & César Calderón, 2004. "Economic Growth in Latin America and The Caribbean: Stylized Facts, Explanations, and Forecasts," Working Papers Central Bank of Chile, Central Bank of Chile 265, Central Bank of Chile.
  13. Helberger, Christof & Knepel, Helmut, 1988. "How big is the shadow economy? : A re-analysis of the unobserved-variable approach of B.S. Frey and H. Weck-Hannemann," European Economic Review, Elsevier, Elsevier, vol. 32(4), pages 965-976, April.
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