Do Workers' Remittances Bring Economic Growth to Receiving Countries?

Seminar paper from the year 2013 in the subject Economics - Job market economics grade: 64% University of Nottingham (Economics) course: MSc in Applied Economics and Financial Economics language: English abstract: Besides foreign direct investment (FDI) and capital market flows workers' remittances are another external channel for capital flows. According to the OECD remittances to developing countries amounted to US$ 149.4 billion in the year 2002. However whereas FDI and capital market flows are subject to variation due to recessions in home countries remittances are steadily rising every year (OECD 2006) reaching an amount of about UD$ 300 billion in the year 2007 (Barajas et al. 2009). To give a brief definition remittances are money transfers from migrants working abroad to their families in their home countries. Yet the question is do these remittances contribute to or boost economic growth in receiving countries or are they only a means to increase the migrants' families' welfare by directly reducing their poverty and raising the living standard (Rao and Hassan 2011). In other words are remittances mostly used for consumption or do they rather flow in education and thereby contribute to the human capital and in investments thus increasing the capital stock in the economy (Giuliano and Ruiz-Arranz 2009)? From the growth theory we know that consumption does not have any impact on growth only investments either in production or in human capital can affect long-run growth. Evidence from Indonesia Ecuador and Argentina (Sayan 2006) shows that remittances indirectly reduce volatility of growth of output in times of crises and increase the growth rate thereby (Rao and Hassan 2011). In contrast Sayan (2006) found that remittances are moving procyclically with out in recipient countries boosting incomes during booms but reducing them even more during recessions and thus magnifying the economic crisis. This paper examines the relationship