Migration, Remittances and Growth

Abstract

<p>In the first chapter of my dissertation I analyze the effect of migration and remittances on a small, open, migrant-sending country in the context of an endogenous growth model with technology transfers. I demonstrate that, due to a dynamic feedback effect from economic conditions to migration and from migration to economic development in an economy exposed to migration, initial conditions can determine its long-run steady state, leading to the rise of vicious or virtuous circles of development. Countries with a low level of technological development may end up in a poverty trap, in which a low level of development results in low wage rates and consequently high migration rates. The high migration and loss of manpower in a general equilibrium setting generates less demand for the adoption of leading technologies, reducing incentives to invest into new technologies. This reduced incentive effect in turn leads to low output and low wages and even higher migration in future periods. Potentially, as in the case of depopulated countries and regions the economy diverges from the world's growth rate and eventually ends up being emptied out. In addition, I show, that altruistic remittances as an important by-product of migration allow people to share the benefits of technological advances developed elsewhere and dampen the negative impact of migration. In particular, remittances remove the limiting case of emptying out of the economy and reduce the chances of ending up in a poverty trap. </p> <p> In the second chapter of my dissertation, I study the implications of migration and remittances for an economy with financial frictions. I introduce migration and remittances into Schumpeterian endogenous growth model with financial constraints and derive the conditions under which migration and remittances can have positive or negative impacts on the country's growth and convergence. I show that the results depend on the degree of the country's financial development and its distance to the technological frontier. Importantly, I show that if the financial constraint is strong, so that the economy is diverging from the world's growth path, then migration and remittances can have growth effects and can increase the steady state growth rate of the country as well as the likelihood that the country will converge to the world's growth path.</p> <p>My third chapter uses a new household-level panel dataset from Kyrgyzstan to study the determinants and implications of remittances and inter-household transfers in general in Kyrgyzstan. We find that remittances in Kyrgyzstan are positively correlated with the income of the receiving households and that the remittance-receiving households have a higher probability of purchasing durable goods then households not receiving remittances.</p>