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Labour Market and Investment Effects of Remittances

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Author Info
Stephen Drinkwater (University of Surrey)
Paul Levine (University of Surrey)
Emanuela Lotti (University of Surrey)

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Abstract

This paper examines the relationship between remittances from interna- tional migration and imperfections in labour and capital markets. We use a search-matching model of the labour market to show that remittances can have two opposing effects on the labour market of the source country. First, they raise the utility of the unemployed members back home and, if a worker's bargaining power is low, this causes the unemployment rate to rise. Second, remittances available for investment will relax credit constraints encountered by firms. If the `investment effect' outweighs the `search income' effect, then remittances will reduce the unemployment rate. Our empirical analysis sug- gests that remittances have a small negative effect on unemployment, but a positive and significant effect on investment.

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Publisher Info
Paper provided by Department of Economics, University of Surrey in its series Department of Economics Discussion Papers with number 1906.

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Length: 34 pages
Date of creation: Oct 2006
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Handle: RePEc:sur:surrec:1906

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Related research
Keywords: migration; remittances; capital constraints.;

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Find related papers by JEL classification:
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

Cited by:
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  1. Claire Naiditch & Radu Vranceanu, 2009. "Migrant wages, remittances and recipient labour supply in a moral hazard model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00318870_v1, HAL. [Downloadable!]
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