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Remittances and Economic Growth in Mexico: An Empirical Study with Structural Breaks, 1970-2010

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  • Miguel D. Ramirez

Abstract

This paper investigates remittance flows to Mexico during the 1980-2010 period in absolute terms, relative to GDP, in comparison to FDI inflows, and in terms of their regional destination. Next, the paper reviews the growing literature that assesses the impact of remittances on investment spending and economic growth. Third, it presents a simple endogenous growth model that explicitly incorporates the potential impact of remittance flows on economic and labor productivity growth. Fourth, it presents a modified empirical counterpart to the simple model that tests for both single- and two-break unit root tests, as well as performs cointegration tests with an endogenously determined level shift over the 1970-2010 period. The error-correction model estimates suggest that remittance flows to Mexico have a positive and significant effect, albeit small, on both economic growth and labor productivity growth. The concluding section summarizes the major results and discusses potential avenues for future research on this important topic.

Suggested Citation

  • Miguel D. Ramirez, 2014. "Remittances and Economic Growth in Mexico: An Empirical Study with Structural Breaks, 1970-2010," Business and Economic Research, Macrothink Institute, vol. 4(1), pages 351-373, June.
    • Handle: RePEc:mth:ber888:v:4:y:2014:i:1:p:351-373
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    References listed on IDEAS

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    6. David Alan Aschauer, 1989. "Back of the G-7 pack: public investment and productivity growth in the Group of Seven," Working Paper Series, Macroeconomic Issues 89-13, Federal Reserve Bank of Chicago.
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    8. Michael T. Gapen & Mr. Ralph Chami & Mr. Peter J Montiel & Mr. Adolfo Barajas & Connel Fullenkamp, 2009. "Do Workers’ Remittances Promote Economic Growth?," IMF Working Papers 2009/153, International Monetary Fund.
    9. Glauco Vita & Kevin Lawler, 2004. "Foreign Direct Investment and its Determinants: A Look to the Past, A View to the Future," Palgrave Macmillan Books, in: Harbhajan S. Kehal (ed.), Foreign Investment in Developing Countries, chapter 1, pages 13-32, Palgrave Macmillan.
    10. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
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    14. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    15. Waheed, Muhammad & Alam, Tasneem & Ghauri, Saghir Pervaiz, 2006. "Structural breaks and unit root: evidence from Pakistani macroeconomic time series," MPRA Paper 1797, University Library of Munich, Germany.
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    Cited by:

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    2. Fahriye Altinay & Gulsun Basari & Mehmet Altinay & Gokmen Dagli & Zehra Altinay, 2019. "An Evaluation of Strategies and Policies in Higher Education Management in Internationalization Process: New Pedagogy," Revista romaneasca pentru educatie multidimensionala - Journal for Multidimensional Education, Editura Lumen, Department of Economics, vol. 11(4), pages 304-320, December.

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    More about this item

    Keywords

    Error-correction model; FDI inflows; Gregory-Hansen cointegration single-break test; Gross fixed capital formation; Johansen Cointegration test; KPSS no unit root test; Lee-Strazicich two-break unit root test; remittance flows; and Zivot-Andrews single-break unit root test.;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F01 - International Economics - - General - - - Global Outlook
    • F01 - International Economics - - General - - - Global Outlook

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