Are Immigrant Remittance Flows a Source of Capital for Development

Abstract

The role of remittances in development and economic growth is not well understood. This is partly because the literatures on the causes and effects of remittances remain separate. We develop a framework that links the motivation for remittances with their effect on economic activity. Because remittances take place under asymmetric information and economic uncertainty, there exists a significant moral hazard problem. The implication is that remittances have a negative effect on economic growth. We test this prediction using panel methods on a large sample of countries. The results indicate that remittances do have a negative effect on economic growth, which indicates that the moral hazard problem in remittances is severe.Moral hazard;Economic growth;Capital flows;Salary remittances;remittances, worker, worker remittances, migration, remittance, wages, migrant, effects of remittances, workers ? remittances, wage, remitter, impact of remittances, uses of remittances, data on remittances, benefits, effect of remittances, remittance flows, remittance transfers, role of remittances, remitters, increase in remittances, recipients of remittances, compensation, private transfers, international remittances, migrant remittances, growth rate of remittances, remittance inflows, labor income, absence of remittances, wage rates, migrant workers ? remittances, migrants ? remittances, compensation of employees, remittances data, remittance arrangements, benefits of remittances, emigrant remittances, remittance transfer, immigrant remittance, wage rate, fixed ? remittances, uses of remittance, fixed remittances, inflow of remittances