Are immigrant remittance flows a source of capital for development?
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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Connel Fullenkamp
Professor of the Practice of Economics
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 p

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