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Do remittances have a flip side ? A general equilibrium analysis of remittances, labor supply responses, and policy options for Jamaica


  • Bussolo, Maurizio
  • Medvedev, Denis


Econometric analysis has established a negative relationship between labor supply and remittances in Jamaica. The authors incorporate this ex-post evidence in a general equilibrium model to investigate economywide effects of increased remittance inflows. In this model, remittances reduce labor force participation by increasing the reservation wages of recipients. This exacerbates the real exchange rate appreciation, hurting Jamaica's export base and small manufacturing import-competing sector. Within the narrow margins of maneuver of a highly indebted government, the authors show that a revenue-neutral policy response of a simultaneous reduction in payroll taxes and increase in sales taxes can effectively counteract these potentially negative effects of remittances.

Suggested Citation

  • Bussolo, Maurizio & Medvedev, Denis, 2007. "Do remittances have a flip side ? A general equilibrium analysis of remittances, labor supply responses, and policy options for Jamaica," Policy Research Working Paper Series 4143, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4143

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    References listed on IDEAS

    1. James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1, January.
    2. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
    3. Alvaro Forteza & Martín Rama, 2000. "Labor Market "Rigidity" and the Success of Economic Reforms Across more than One Hundred Countries," Documentos de Trabajo (working papers) 0600, Department of Economics - dECON.
    4. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    5. Matshe, Innocent & Young, Trevor, 2004. "Off-farm labour allocation decisions in small-scale rural households in Zimbabwe," Agricultural Economics, Blackwell, vol. 30(3), pages 175-186, May.
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    Cited by:

    1. Anda David & Mohamed Ali Marouani, 2013. "The Impact of Labor Mobility on Unemployment: A Comparison between Jordan and Tunisia," Working Papers 823, Economic Research Forum, revised Dec 2013.
    2. Jadotte, Evans, 2009. "International Migration, Remittances and Labour Supply: The Case of the Republic of Haiti," WIDER Working Paper Series 028, World Institute for Development Economic Research (UNU-WIDER).
    3. Ernesto M. Pernia, 2011. "Is labor export good development policy?," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 48(1), pages 13-34, June.
    4. Farid Makhlouf & Mazhar Mughal, 2013. "Remittances, Dutch Disease, And Competitiveness: A Bayesian Analysis," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 67-97, June.
    5. Luis Arango & Dolores Mata & Nataly Obando, 2015. "Echoes of the crises in Spain and US in the Colombian labor market: a differences-in-differences approach," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(4), pages 441-477, November.
    6. Kiawu, James & Jones, Keithly G, 2013. "Implications of food aid and remittances for West African food import demand," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 8(1), July.
    7. Anda David & Mohamed Ali Marouani, 2015. "Migration and Employment Interactions in a Crisis Context: the case of Tunisia," Working Papers 20150007, Université Paris 1 Panthéon Sorbonne, UMR Développement et Sociétés.
    8. Pamela Coke Hamilton & Yvonne Tsikata & Emmanuel Pinto Moreira, 2009. "Accelerating Trade and Integration in the Caribbean : Policy Options for Sustained Growth, Job Creation, and Poverty Reduction," World Bank Publications, The World Bank, number 2652, March.
    9. Guha, Puja, 2013. "Macroeconomic effects of international remittances: The case of developing economies," Economic Modelling, Elsevier, vol. 33(C), pages 292-305.
    10. Mora, J.J., 2013. "Gender differences between remittances and labor participation in developing countries: A cross-section analysis of Colombia in year 2008," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(1), pages 99-112.
    11. World Bank, 2006. "Exploring Lebanon's Growth Prospects," World Bank Other Operational Studies 13053, The World Bank.
    12. Jadotte, Evans & Ramos, Xavier, 2015. "The Effect of Remittances on Labour Supply in the Republic of Haiti," IZA Discussion Papers 9541, Institute for the Study of Labor (IZA).
    13. Mahalia Jackman, 2014. "A Note on the Labor Market Effects of Remittances in Latin American and Caribbean Countries: Do Thresholds Exist?," The Developing Economies, Institute of Developing Economies, vol. 52(1), pages 52-67, March.

    More about this item


    Labor Markets; Economic Theory&Research; Remittances; Markets and Market Access; Economic Growth;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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