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Worker Remittances and Growth: The Physical and Human Capital Channels

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  • Ziesemer, Thomas

    () (University of Maastricht, Faculty of Economics)

Abstract

Remittances may have an impact on economic growth through channels to physical and human capital. We estimate two variants of an open economy model of these two channels consisting of seven equations using the general method of moments with heteroscedasticity and autocorrelation correction (GMM-HAC) with pooled data for four different samples of countries receiving remittances in 2003. The countries with per capita income below $1200 benefit most from remittances in the long run because they have the largest impact of remittances on savings. Their remittances account for about 2% of the steady-state level of GDP per capita when compared to the counterfactual of having no remittances. Their ratio of the steady-state growth rates with and without remittances is 1.39. Transitional gains are higher than the steady-state gains only for the human capital variables of this sample. As savings react much more strongly than investment an important benefit of remittances is that less debt is incurred and less debt service is paid than without remittances. The elasticity of the GNI/GDP ratio with respect to the remittance/GDP ratio is .002. All effects are much weaker for the richer countries.

Suggested Citation

  • 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).
  • Handle: RePEc:unm:unumer:2006020
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    Keywords

    remittances; growth; simultaneous equation model;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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