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Remittances and Economic Growth in Mexico: An Empirical Study with Structural Breaks

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  • Miguel Ramirez

    (Department of Economics, Trinity College)

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 Ramirez, 2013. "Remittances and Economic Growth in Mexico: An Empirical Study with Structural Breaks," Working Papers 1306, Trinity College, Department of Economics.
    • Handle: RePEc:tri:wpaper:1306
    as

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    File URL: http://www3.trincoll.edu/repec/WorkingPapers2013/WP13-06.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. 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.
    Full references (including those not matched with items on IDEAS)

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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:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • 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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