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Abstract:
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This study investigates the impact of migrant remittances on economic growth in the developing countries that receive the remittances. After reviewing the relevant literature on remittances at both the micro and macro levels, it outlines the research design for a macro-level study on the impact of remittances on growth. The hypothesis is that remittances can have a positive impact on growth and the model includes various interaction terms in order to determine the macroeconomic situation under which this can happen. Ordinary least squares and fixed effects regressions are performed with cross-country macroeconomic data from 152 low and middle income countries from 1990 to 2005. The results suggest that remittances have a positive impact on growth and that this impact increases at higher levels of remittances relative to GDP. Additionally, remittances are found to have a more positive impact in countries with certain characteristics: low domestic credit available, low capital formation, and low inflation. These results provide further justification for the policy recommendations currently advocated by many in the development community and suggest some new policies to increase the developmental impact of remittances that fall into two broad categories: steering remittances toward the most productive areas and creating a macroeconomic climate where remittances can have the greatest impact. |