Remittances and their impact on economic growth

Abstract

In the worldwide economy, remittances represent one of the major international flows of financial resources. Worker remittances constitute an increasingly important mechanism for the transfer of resources from developed to developing countries, and remittances are the second-largest source, behind foreign direct investment, of external funding for developing countries. Sometimes the flows of remittances can exceed the flows of foreign direct investment (FDI). Yet, literature on worker remittances has so far focused mainly on the impact of remittances on income distribution within countries, on the determinants of remittances at a micro-level, or on the effects of emigration and remittances for specific countries or regions. This paper tries to study the impact of remittances on various macroeconomic and developmental aspects for the economy. This study aims to observe the impact of remittances on economic growth, using a panel data set of 21 developing countries, during the period 1992-2012. These countries have experienced a major increase in remittance inflows, and at this time accounts for the bulk of total remittance receipts, compared with other regions. The paper is then to review the theoretical as well empirical literature devoted to remittances, in order; first, to select the arguments that can be applied to the countries and second, to identify empirically if there are significant relationships between remittances and GDP per capita in these countries.