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Remittances and the Dynamics of Human Capitalin the Recipient Country

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Abstract

This paper provides an analysis of the impact of migration and remittances on the inter-generational evolution of human capital in an economy that is characterized by the existence of a poverty trap at a low level of human capital. The analysis is conducted within an overlapping generation model, where parental investment in education are driven by weakly altruistic motivations. Remittances boost educational expenditure in recipient households, and they can determine a decisive impact on the long-term dynamics of human capital under favourable assumptions on the wage differential and on migration costs. Under these assumptions, an exogenous probability to migrate represents an equal probability of moving out of the poverty trap, that fades away in the long run, as remittances lead all households to converge towards the equilibrium at a high level of human capital. Although this model does not analyze the general equilibrium effects of remittances – as it is grounded on the independence of households’ dynamics – it provides a framework that is open to such an extension, that is called for by the literature on the Dutch Disease effects of remittances.

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Bibliographic Info

Paper provided by University of Turin in its series Department of Economics and Statistics Cognetti de Martiis. Working Papers with number 200607.

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Length: 30 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:uto:dipeco:200607

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  1. Poirine, Bernard, 1997. "A theory of remittances as an implicit family loan arrangement," World Development, Elsevier, vol. 25(4), pages 589-611, January.
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  3. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
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  18. Hillel Rapoport, 2002. "Migration, credit constraints and self-employment: A simple model of occupational choice, inequality and growth," Economics Bulletin, AccessEcon, vol. 15(7), pages 1-5.
  19. McCormick, Barry & Wahba, Jackline, 2000. "Overseas Employment and Remittances to a Dual Economy," Economic Journal, Royal Economic Society, vol. 110(463), pages 509-34, April.
  20. Oded Stark, 2005. "The New Economics of the Brain Drain," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 6(2), pages 137-140, April.
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Cited by:
  1. Ziesemer, Thomas, 2009. "The Impact of the Credit Crisis on Poor Developing Countries: Growth, worker remittances, accumulation and migration," MERIT Working Papers 026, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Ziesemer, Thomas, 2006. "Worker Remittances and Growth: The Physical and Human Capital Channels," MERIT Working Papers 020, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  3. Ziesemer, Thomas, 2010. "The Impact of the Credit Crisis on Poor Developing Countries and the Role of China in Pulling and Crowding Us Out," MERIT Working Papers 004, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  4. Ziesemer, Thomas, 2008. "Worker remittances, migration, accumulation and growth in poor developing countries," MERIT Working Papers 063, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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