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The impact of remittances on savings, capital and economic growth in small emerging countries

Author

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  • Lesly Cassin

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Zouhair Aït Benhamou

Abstract

This paper uses an OLG model in order to capture the economic and demographic effects of remittances in small open economies. We describe household decisions on education and savings, where elderly people receive remittances and domestic transfers from their children. Due to a boost in returns from human capital investments as well as higher levels of productivity elsewhere, remittances increase education at the expense of domestic savings. A significant negative correlation is thus found between domestic savings and remittances in a large set of countries. The model also predicts inverted U-shaped curves between remittances and economic growth because of this substitution effect. Furthermore, we conduct a counterfactual analysis on five Caribbean islands, which shows that different strategies regarding domestic transfers and remittances may be successful in fostering growth, depending on the scale of migration or the transfer rate.

Suggested Citation

  • Lesly Cassin & Zouhair Aït Benhamou, 2020. "The impact of remittances on savings, capital and economic growth in small emerging countries," Post-Print hal-02477083, HAL.
    • Handle: RePEc:hal:journl:hal-02477083
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    Keywords

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    JEL classification:

    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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