Are remittances good for growth? It depends...

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I've just run across two papers examining the impact of remittances on growth, and they both point to a similar conclusion. The first, entitled Remittances and Growth in Latin America, concludes:

Another interesting result reported in this study is that the economic impact of remittances is higher in the upper income group than in the lower income group...The differential impact of remittances might be due to the fact that most of the remittances are spent on consumption in lower income countries, while the households in the upper income countries have more opportunities to invest them profitably.

A second paper, entitled Remittances and Financial Development: Substitutes or Complement in Economic Growth, came to this conclusion:

[We] show that migrants' remittances positively affect economic growth only in countries where domestic banks are sufficiently efficient.

Both papers respond to an analysis published in 2006 called Remittances, Financial Development, and Growth. That paper found that:

Given the difficulty of borrowing in developing countries, we explore the hypothesis that remittances can substitute for a lack of financial development and hence promote growth. The empirical analysis shows that remittances can promote growth in less financially developed countries.


Ryan Hahn

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