Why Don't Remittances Appear to Affect Growth?

Abstract

While measured remittances by migrant workers have recently soared, macroeconomic studies have difficulty detecting their effect on economic growth. We propose three new explanations for this puzzle. First, a large majority of the recent rise in measured remittances may be illusory – arising from changes in measurement. Second, cross-country regressions may lack power to detect such growth effects. Third, remittances rise primarily with rising emigration, whose opportunity cost to GDP creates endogeneity bias. Migration and remittances clearly have first-order effects on poverty, migrant households’ welfare and global GDP but detecting the effect of remittances on economic growth faces important challenges.