Why Don't Remittances Appear to Affect Growth?

31 Pages Posted: 6 Jul 2018

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

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Date Written: July 2018

Abstract

While measured remittances by migrant workers have recently soared, macroeconomic studies have difficulty detecting their effect on economic growth. We propose three new explanations for this puzzle. First, a large majority of the recent rise in measured remittances may be illusory – arising from changes in measurement. Second, cross‐country regressions may lack power to detect such growth effects. Third, remittances rise primarily with rising emigration, whose opportunity cost to GDP creates endogeneity bias. Migration and remittances clearly have first‐order effects on poverty, migrant households’ welfare and global GDP but detecting the effect of remittances on economic growth faces important challenges.

Suggested Citation

Clemens, Michael Andrew and McKenzie, David John, Why Don't Remittances Appear to Affect Growth? (July 2018). The Economic Journal, Vol. 128, Issue 612, pp. F179-F209, 2018, Available at SSRN: https://ssrn.com/abstract=3208996 or http://dx.doi.org/10.1111/ecoj.12463

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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