Although measured remittances by migrant workers have soared in recent years, macroeconomic studies have difficulty detecting their effect on economic growth. This paper reviews existing explanations for this puzzle and proposes three new ones. First, it offers evidence that a large majority of the recent rise in measured remittances may be illusory -- arising from changes in measurement, not changes in real financial flows. Second, it shows that even if these increases were correctly measured, cross-country regressions would have too little power to detect their effects on growth. Third, it points out that the greatest driver of rising remittances is rising migration, which has an opportunity cost to economic product at the origin. Net of that cost, there is little reason to expect large growth effects of remittances in the origin economy. Migration and remittances clearly have first-order effects on poverty at the origin, on the welfare of migrants and their families, and on global gross domestic product; but detecting their effects on growth of the origin economy is likely to remain elusive.
Details
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Author
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Document Date
2014/05/01
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Document Type
Policy Research Working Paper
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Report Number
WPS6856
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2014/05/01
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Disclosure Status
Disclosed
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Doc Name
Why don't remittances appear to affect growth ?
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Keywords
combat money laundering and the financing of terrorism and proliferation;remittance;Finance & Private Sector Development;Center for Latin American Monetary;Household Income and Expenditure Survey;Public and Publicly Guaranteed;foreign direct investment;fixed rate of interest;net inflows of investment;cost of sending remittance;per capita income growth;balance of payment data;balance of payment statistic;larger number of observation;global gross domestic product;effect of remittance;migrant;increase in remittance;
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Citation
Clemens,Michael A. Mckenzie,David J.
Why don't remittances appear to affect growth (English). Policy Research working paper ; no. WPS 6856 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/114141468323950998/Why-dont-remittances-appear-to-affect-growth