Why Don't Remittances Appear to Affect Growth?

51 Pages Posted: 20 Apr 2016

See all articles by Michael A. Clemens

Michael A. Clemens

Center for Global Development; IZA-Institute for the Study of Labor

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2014

Abstract

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.

Keywords: Population Policies, Remittances, Debt Markets, Access to Finance, Currencies and Exchange Rates

Suggested Citation

Clemens, Michael Andrew and McKenzie, David John, Why Don't Remittances Appear to Affect Growth? (May 1, 2014). World Bank Policy Research Working Paper No. 6856. Available at SSRN: https://ssrn.com/abstract=2433809

Michael Andrew Clemens (Contact Author)

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David John McKenzie

World Bank - Development Research Group (DECRG) ( email )

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IZA Institute of Labor Economics ( email )

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