Are immigrant remittance flows a source of capital for development?
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2005-07-06
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Abstract
There is a general presumption in the literature and among policymakers that immigrant remittances play the same role in economic development as foreign direct investment and other capital flows, but this is an open question. We develop a model of remittances based on the economics of the family that implies that remittances are not profit-driven, but are compensatory transfers, and should have a negative correlation with GDP growth. This is in contrast to the positive correlation of profit-driven capital flows with GDP growth. We test this implication of our model using a new panel data set on remittances and find a robust negative correlation between remittances and GDP growth. This indicates that remittances may not be intended to serve as a source of capital for economic development. © 2005 International Monetary Fund.
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Scholars@Duke
Connel Fullenkamp
Professor Fullenkamp specializes in the investigation of financial market development and regulation of financial markets. His projects often involve the exploration of such variables as immigrant worker remittances, economic policy, and the development of countries. His completed papers have appeared in various leading academic journals, including The Cato Journal, the Journal of Banking and Finance, the Review of Economic Dynamics, and the Review of Economics and Statistics. Titles of his publications include, “Capital Trading, Stock Trading, and the Inflation Tax on Equity” with Scott Baier, Charles Carlstrom, Ralph Chami, Thomas Cosimano, and Timothy Fuerst; “Assessing Individual Risk-Attitudes Using Field Data from Lottery Games” with Rafael Tenorio and Robert Battalio; “Are Immigrant Remittance Flows a Source for Capital Development” with Ralph Chami and Samir Jahjah; and more. Professor Fullenkamp is currently focusing his studies on the impact of immigrant remittances on economic growth and the framework for financial market development.
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