Worker Remittances and Growth: The Physical and Human Capital Channels
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.
JEL class.: O15, J61, C33.
Keywords: remittances, growth, simultaneous equation model.