Effects of Workers' Remittances and its Volatility on Economic Growth in South Asia

This study investigates the effect of workers' remittances and its volatility on economic growth of five South Asian countries by employing long time series data from 1975 to 2009. Cointegration results confirm a significant positive long run relationship between remittances and economic growth in India, Bangladesh, Sri Lanka and Nepal, but a significant negative relationship in Pakistan. Conversely, the volatility of workers' remittances has a negative and significant effect on economic growth in Pakistan, Indian, Bangladesh and Sri Lanka, but a negative but insignificant impact in Nepal. All sensitivity analyses confirm that the results are robust. A less volatile inflow of workers' remittances is growth‐enhancing for all countries. It is suggested that policy makers should make policies to reduce the transaction cost to welcome remittances into the region. Furthermore, countries like Pakistan should make the policies to discourage voluntary unemployment.

Policy Implications

• This study show the positive effect of remittances on economic growth in India, Bangladesh, Sri‐Lanka and Nepal. These countries should create friendly policies to reduce the transaction cost to ensure the continuous inflows of workers' remittances.
• Results indicate a negative effect of remittances on economic growth in Pakistan. Remittances are considered an uninterrupted source of income, which may increase voluntary unemployment, leading to decreased economic growth. The government should make policies to discourage this voluntary unemployment.
• Policymakers should create effective systems to ensure this inflow comes through formal financial channels for better control.

     

Remittances and Energy Consumption: Evidence from Morocco

The main purpose of this study is to empirically investigate the co‐integration and causal relationship between international remittances and energy consumption in the context of Morocco. Previous empirical studies associated remittances with various macroeconomic and social variables. To our knowledge, this is the first study that examines the causality between remittances and energy consumption in Morocco. The study finds a long‐run equilibrium relationship between remittances and energy consumption. The results indicate that remittances influence energy consumption directly both in the short run and long run, and influence energy consumption indirectly through industrialization and economic growth in the long run.     

What Drives Remittances from Saudi Arabia to Pakistan? Home Versus Host Country's Economic Conditions

Saudi Arabia is the largest source country of remittances to Pakistan since the 1970s. This study examined the impact of home versus host country’s economic conditions on remittances from Saudi Arabia to Pakistan. The ARDL bounds testing is used on the annual data set from 1973 to 2014. The study concluded that economic growth in the host country and economic crises in the home country increase remittances. 1% decrease in domestic output increases remittances by 2.79% while 1% increase in sending country’s output growth increases remittances by 5.2% in the long‐run. The bilateral trade has a positive while financial deepening has a negative impact on inflows. The impact of oil shock is insignificant. We suggest cautious foreign policy as remittances depend significantly on the host country’s economic condition that is not directly under the control of the home country but remittances can be sustained with bilateral trade.     

Growth Effects of Remittances in Bangladesh: Is there a U‐shaped Relationship?

This article shows that the effect of remittances on economic growth involves a U‐shaped pattern, which is negative initially but later becomes positive. The analysis differs significantly from earlier studies in that it examines important methodological issues on the specification and estimation of the long‐run growth effects of remittances by estimating their impact on total factor productivity (TFP) rather than on the growth rate of GDP, using time series data from Bangladesh. The use of single‐equation cointegration methods shows that remittances’ effect on long‐run growth in Bangladesh is negative and falling until the remittances‐to‐GDP ratio is roughly eight per cent. The benefits of remittances receipts outweigh their costs and their net effects start to become positive when the ratio exceeds 14 per cent.     

How Do Workers’ Remittances Respond to Lending Rates?

The literature on migrants’ motivation to remit ranges from self‐interest to altruism where studies analyse the impact from home country interest rates or interest differentials between home and host countries. We reinterpret the interest rate elasticity of remittances as a form of debt‐repayment responsiveness rather than based on opportunistic motivation. Modelling altruistic transfer and debt‐repayment, we find that, for a panel of countries, the long‐run responsiveness of remittances to changes in real lending rates is negative. This suggests that an expansionary (contractionary) monetary policy is most likely to lead to an increase (reduction) in remittances in the long‐run. In contrast to this, the short‐run impact of interest rate changes on remittances is positive.     

Remittances,Institutions and Growth in Africa

Remittances have become an important source of external finance in many developing countries. This article examines the relationship between remittances, institutions and economic growth in a panel of 26 African countries over the period 1980–2014. We apply the fixed effects (FE) and the two‐step system generalized method‐of‐moments (GMM) estimation methods. Our results show that there is a positive relationship between remittances and growth. We also find that institutions are an important determinant of economic growth. The interaction terms have a positive and statistically significant effect on economic growth. Thus, the growth effect of remittances is enhanced in the presence of strong institutions. Strong institutions are therefore germane in attracting greater remittance inflows to African countries. A clearer understanding of the channels through which remittance flows will enhance growth in African economies may assist policymakers to craft appropriate policies. In particular, a policy environment that promotes strong institutions would serve to attract more remittances.     

Remittances and Calorie Consumption Nexus in Algeria

This study investigates the cointegration and causal relationships between remittances and calorie consumption as an indicator of food security in Algeria. We estimate the calorie demand function for the period 1970‐2008, using two different cointegration tests Johansen and Juselius ( 1990 ) and autoregressive distributed lag (ARDL) bounds testing approach proposed by Pesaran et al. ( 2001 ) and Granger causality test based on Vector Error Correction Model. We find that: (1) GDP per capita affects calorie consumption positively and significantly; (2) income elasticity of calorie consumption is 0.16 in the short run and 0.60 in the long run; (3) remittances positively and significantly influence calorie consumption in the long run; (4) remittance elasticity of calorie consumption is 0.05 in the long run; (5) based on the causality test remittances influence calorie consumption directly and indirectly via GDP per capita in the long run.     

The Impact of European Monetary Union on Finance-Growth Nexus

This study examines the relationship between financial development and economic growth in 15 developed European countries before and after the formation of the euro. The results of the panel data analysis show that financial development is significant in promoting economic growth for both periods. The impact of the banking sector development on growth, however, is greater in the post-euro period, whereas the impact of stock market development on growth is reducing in the period investigated. The study concludes that the formation of European Monetary Union does not weaken the relationship between financial development and economic growth in developed European countries.     

The new economics of labour migration and the role of remittances in the migration process

This analysis considers international migration remittances and their impact on development in migrant-sending areas. The new economics of labor migration (NELM) posit that remittances lessen production and market constraints faced by households in poor developing countries. The article states that remittances may be a positive factor in economic development, which should be nurtured by economic policies. The impact of remittances and migration on development varies across locales and is influenced by migrants' remittance behavior and by economic contexts. Criteria for measuring development gains may include assessments of income growth, inequity, and poverty alleviation. It is hard to gauge the level of remittances, especially when remittances may not flow through formal banking systems. The International Monetary Fund distinguishes between worker remittances sent home for over 1 year; employee compensation including the value of in-kind benefits for under 1 year; and the net worth of migrants who move between countries. This sum amounted to under $2 billion in 1970 and $70 billion in 1995. The cumulative sum of remittances, employee compensation, and transfers was almost $1 trillion, of which almost 66% was worker remittances, 25% was employee compensation, and almost 10% was transfers during 1980-95. Total world remittances surpass overseas development assistance. Remittances are unequally distributed across and between countries. Migration research does not adequately reveal the range and complexity of impacts. Push factors can limit options for use of remittances to stimulate development.     

New Light on the Remittances‐Poverty‐Health Nexus in Macedonia

Macedonia receives about 10 per cent of GDP as cash remittances per year while a third of the population faces poverty. The study aims to investigate whether remittances improve the poverty and health of individual remittance‐receivers in Macedonia. To that end, we rely on the 2008 Remittances’ Survey and a sequential structural model linking remittances to social indicators. We find that remittances have a significant effect oto consumption, in particular health consumption, hence contribute to reducing poverty. In turn, improved health consumption significantly reduces the incidence of bad health among receivers. This finding lends support to the claim that remittances serve an informal social protection in Macedonia.     

Migrant remittances in Greece and Portugal: distribution by country of provenance and the role of the banking presence

The article examines migrant remittances per country of origin of remittances for two emigration countries, Greece and Portugal. It also examines the relationship between remittances and the number of banks of the emigration country in the host country.
From the analysis it appears that remittances are concentrated in a small number of host countries – the US and Germany for the Greek case; France (mainly) and the US, Germany and Switzerland for the Portuguese case.
Remittances followed similar trends, characterized by especially high growth during the 1970s and also during the second half of the 1980s. For both countries similar trends are observed regarding the relationship between remittances and remittances per migrant with the presence of banks of the home country at the important countries of origin of remittances.
The growth of the banking presence in host countries had a significant impact on the growth of migrant remittances. However, remittances and migrant population are neither the unique nor main reason for banking expansion abroad. The common European financial and banking market is expected to play a major role in the banking presence abroad, particularly in European Union countries.     

Can Migration Foster Development in Mexico? The Case of Poverty and Inequality

The impact of migration on development can be analysed from a number of perspectives. This article focuses on poverty and inequality. It assesses the relative contribution of migrants to Mexico′s economy through remittances, compared to other Latin American countries; analyses the distributional impact of remittances (with an emphasis on the poor), and compares this impact to the counterfactual impact of migrants’ stay‐at‐home income. It explains the processes leading to scant economic success rates among poor international migrants. Finally, it describes the nature and impact of current Mexican migrant‐oriented policies, and recommends a shift in focus, to lessen emigration, increase the income of migrants, promote returns, and bolster the economic impact of returning migrants.     

Workers’ Remittances and Domestic Investment in South Asia: A Comparative Econometric Inquiry

This study explores the effect of workers’ remittances on domestic investment in four selected South Asian countries: Bangladesh, India, Pakistan, and Sri Lanka, using contemporary time series estimation techniques from 1980 to 2017. The estimated results of the ARDL bounds approach to cointegration analysis have revealed that among selected South Asian countries, Pakistan has witnessed a significant negative effect in the long run. Similarly, the findings of other forms of capital flows also revealed varying effects across the countries considered. This study urges the transformation of aggregate economic behaviour from consumption to the production side, by adopting policies that would encourage domestic saving and investment activities. In this regard, among others, reduction in the interest rate and the interest rate spread would be beneficial. It urges the identification of factors that conditions varying effect of workers’ remittances and other capital inflows to mitigate negative effects into positive.     

International Migration and the Role of Remittances in Eastern Europe

In this paper we analyse the effect of remittances on employment performance for Central and East European (CEE) economies. We show that the impact of remittances on unemployment depends on its effect on productivity growth and investment. In order to empirically analyse the impact of remittances we estimate a productivity equation using a set of 11 transition countries during the 1990 to 1999 period. Our results show support for the view that remittances have a positive impact on productivity and employment both directly and indirectly through its effect on investment.     

International Migrants' Remittances and Welfare Status of the Left‐Behind Families in Turkey

In this study, micro implications of remittances are examined based on the data from the 1996 Turkish International Migration Survey (TIMS‐96), part of a comprehensive study of Eurostat and the Netherlands Interdisciplinary Demographic Institute (NIDI). Results of the study imply that migrant savings are generally used for satisfying basic consumption needs. Patterns of expenditures suggest that for 12 percent of all the households receiving remittances, about 80 percent used remittances to improve their standard of living. Considering the variation by regions, it is observed that households in less‐developed regions spent more on daily expenses than those in developed regions. This suggests that daily expenses of households in less developed regions depend significantly on remittances received by households. Moreover, remittances have a positive impact on household welfare; households receiving remittances are found to be better off than nonremitting households. This suggests that migration and remittances have positive indirect effects on incomes of emigrant households. A considerable part of the relevant literature argues that remittances are mostly spent on consumption, housing and land and are not used for productive investment that would contribute to long‐run development. This conclusion often rests on arbitrary definitions of “productive investments.” Access to better nutrition and allocation of more resources to education are, without question, forms of productive investment. Although emigration does not serve as a solution to the problems of national development, it is evident that remittances generate considerable welfare effects, at least for the remittance‐receiving population.     

Determinants of remittances in Egypt: Do macroeconomic instability and oil price matter?

Emigration and resulting voluminous remittance inflows have been noticeable features of the Egyptian economy since the 1960s. The main purpose of this study is to investigate the determinants of remittances – primarily the role of both macroeconomic instability and oil price – in Egypt. Using autoregressive distributed lag (ARDL) bounds testing procedure, we estimated a remittance determination equation over the period from 1980 to 2015 and found that: (1) macroeconomic instability in Egypt and increases in international oil prices promote remittances; (2) GDP growth rate in the host countries and depreciation of domestic currency spur remittances; (3) financial development is inversely related to remittances, implying that remittances and financial development are substitutes; (4) GDP growth in the home country is not significantly associated with remittances.     

Worker Remittances and Capital Flows to Developing Countries

Worker remittances constitute an increasingly important channel for the transfer of resources to developing countries. Behind foreign direct investment, remittances are the second‐largest source of external funding for developing countries. Yet, literature on worker remittances has traditionally focused on the impact of remittances on income distribution within countries, on the determinants of remittances at a micro‐level, or on the effects of migration and remittances for specific countries or regions. Macroeconomic determinants and effects of remittances have received more attention only recently. Hence, the focus of this paper is on the macroeconomic determinants of remittances and on differences in these determinants between remittances and other capital flows. We find that remittances respond more to demographic variables while private capital flows respond more to macroeconomic conditions.     

Finance-growth-poverty nexus in South Africa: A dynamic causality linkage

This paper attempts to examine the dynamic causal relationship between financial development, economic growth and poverty reduction in South Africa—using a trivariate causality model. The study attempts to answer one critical question. Which sector leads in the process of poverty reduction in South Africa—the financial sector or real sector? Using cointegration and error-correction models, the empirical results of the study show that both financial development and economic growth Granger—cause poverty reduction in South Africa. The study also finds that economic growth Granger-causes financial development and, therefore, leads in the process of poverty reduction in South Africa. This applies irrespective of whether the causality test is conducted in the short-run or in the long-run. The study, therefore, recommends that policies geared towards increasing economic growth should be intensified in South Africa in order to make the economy more monetised, and to reduce the high level of poverty currently prevailing in the country.     

Overseas workers' remittances in Asian development

In recent years, overseas workers from Asia have been sending remittances of about $8 billion annually to their home countries. These remittances are an important source of precious foreign exchange for the major labor-exporting countries. The overall development impact of remittances, however, has not been well established. Remittances are spent primarily on day-to-day consumption expenditures, housing, land purchase, and debt repayment. Although only a small proportion of remittances are directed into productive investments, this does not warrant the conclusion that the developmental value of remittances is negligible. In fact, remittances spent on domestic goods and services Asia provide an important stimulus to indigenous industries and to the economies of the labor supplying countries. It is these broader macroeconomic benefits of remittances which seem to have been largely ignored in the literature, and this perhaps explains the pessimistic view of the developmental value of remittances. Reservations concerning the effects of remittance on the sending countries include the fears that 1) expenditure patterns of remittance receiving households may create a demonstration effect whereby nonmigrant households may increase consumption, 2) remittance inflow will increase income and wealth inequalities, 3) remittance expenditures may result in inflation, 4) remittances may produce only short-term fluctuations in long-term economic development, and 5) remittances may adversely affect agricultural development.     

Remittances and Other Financial Flows to Developing Countries

Official estimates of migrants’ remittances are around US$100 billion annually, with some 60 per cent going to developing countries. Any policy making use of migrants as a development resource must understand the size and allocation of remittances, and the roles played by migrants and their communities in the remittance process. This paper examines the flows of remittances in relation to other financial flows to developing countries. The examination is based on data available from official statistics. As discussed in the paper, remittances by unofficial channels are significant by all accounts so the remittance amounts reported here are quite conservative. The paper shows that annual remittances to developing countries have more than doubled between 1988 and 1999. Viewed over the last decade, remittances have been a much larger source of income for developing countries than official development assistance (ODA). The gap is increasing, since ODA has been falling while remittances have increased. Furthermore, remittances appear to be a much more stable source of income than private flows, both direct and portfolio, which tend to be more volatile and flow into a limited set of countries. Remittances to developing countries go first and foremost to lower middleincome and low–income countries. Lower middle–income countries receive the largest amounts, but remittances constitute a much higher share of total international flows to low–income countries. Of the ten countries receiving most remittances, two are low–income (India and Pakistan); six are lower middle–income (Philippines, Turkey, Egypt, Morocco, Thailand, and Jordan); and two are upper middle–income (Mexico and Brazil). Sub–Saharan Africa received some 8 per cent of remittances in 1980, but only some 4 per cent in 1999. South Asia’s share also declined from what was already a relatively high 34 to 24 per cent. Those who gained most were Eastern Europe and Central Asia, South and Central America, and the Caribbean, which increased their share of global remittances.