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Do Remittances Promote Labor Productivity Growth in Mexico? An Empirical Analysis, 1970-2014

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  • Miguel D. Ramirez

    () (Department of Economics, Trinity College)

Abstract

This paper investigates remittance flows to Mexico during the 1980-2014 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 1970-2014 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, 2017. "Do Remittances Promote Labor Productivity Growth in Mexico? An Empirical Analysis, 1970-2014," Working Papers 1702, Trinity College, Department of Economics.
  • Handle: RePEc:tri:wpaper:1702
    as

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    File URL: http://internet2.trincoll.edu/repec/WorkingPapers2017/WP17-02.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
    1. Hakkio, Craig S. & Rush, Mark, 1991. "Cointegration: how short is the long run?," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 571-581, December.
    2. 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.
    3. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
    4. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    5. 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.
    6. 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.
    7. 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.
    8. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
    9. Miguel Ramirez, 2007. "A Panel Unit Root and Panel Cointegration Test of the Complementarity Hypothesis in the Mexican Case: 1960–2001," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(3), pages 343-356, September.
    10. Michael T. Gapen & Ralph Chami & Peter J Montiel & Adolfo Barajas & Connel Fullenkamp, 2009. "Do Workers’ Remittances Promote Economic Growth?," IMF Working Papers 09/153, International Monetary Fund.
    11. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    12. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    13. Gemechu Ayana Aga & Christian Eigen-Zucchi & Sonia Plaza & Ani Rudra Silwal, 2013. "Migration and Development Brief, No. 20," World Bank Other Operational Studies 17020, The World Bank.
    14. Baumol, William J. & Nelson, Richard R. & Wolff, Edward N. (ed.), 1994. "Convergence of Productivity: Cross-National Studies and Historical Evidence," OUP Catalogue, Oxford University Press, number 9780195083903.
    15. Jesus Canas & Roberto Coronado & Pia M. Orrenius, 2007. "Explaining the increase in remittances to Mexico," Southwest Economy, Federal Reserve Bank of Dallas, issue Jul, pages 3-7.
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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;

    JEL classification:

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

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