Front Matter
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Given the large size of aggregate remittance flows (billions of dollars annually), they should be expected to have significant macroeconomic effects on the economies that receive them. This paper directly addresses the two main issues of interest to policymakers with regard to remittances--how to manage their macroeconomic effects, and how to harness their development potential--by reporting the results of the first global study of the comprehensive macroeconomic effects of remittances on recipient economies. In broad terms, the findings of this paper tend to confirm the main benefit cited in the microeconomic literature: remittances improve households' welfare by lifting families out of poverty and insuring them against income shocks. The findings also yield a number of important caveats and policy considerations, however, that have largely been overlooked. The main challenge for policymakers in countries that receive significant flows of remittances is to design policies that promote remittances and increase their benefits while mitigating adverse side effects. Getting these policy prescriptions correct early on is imperative. Globalization and the aging of developed economy populations will ensure that demand for migrant workers remains robust for years to come. Hence, the volume of remittances likely will continue to grow, and with it, the challenge of unlocking the maximum societal benefit from these transfers.

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Macroeconomic consequences of remittances / Ralph Chami… [et al.] — Washington, DC : International Monetary Fund, 2008.

p. cm. — (Occasional paper ; 259)

Includes bibliographical references.

ISBN 978-1-58906-701-1

1. Emigrant remittances. 2. Macroeconomics. 3. Emigrant remittances — Government policy. I. Chami, Ralph. II. International Monetary Fund. III. Series (Occasional paper (International Monetary Fund)); 259

JV6118 .M337 2008

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  • Preface

  • I Introduction

  • II Remittances: Measurement Matters

    • Why Study the Macro Effects of Remittances?

    • Measuring Remittances

    • Examining the Data: Measurement Matters

    • New Balance of Payments Methodology

    • Conclusion

    • References

  • III Remittances: Stylized Facts

    • Stylized Facts Using Aggregate Data on Workers’ Remittances

    • Stylized Facts Using a Cross-Country Database of Workers’ Remittances

    • Conclusion

    • References

  • IV What Drives Remittance Flows?

    • Factors Driving Remittances

    • Uses of Remittances

    • References

  • V Macroeconomic Implications of Remittances: Theory

    • Workers’ Remittances and Short-Run Macroeconomic Performance

    • Remittances and Growth

    • Remittances and Government Debt Sustainability

    • Conclusion

    • References

  • VI Macroeconomic Implications of Remittances: A General Equilibrium Model with Money

    • Remittances in a Business Cycle Framework

    • Results with Labor Income Taxation

    • Results with Consumption Taxation

    • Remittances and Macroeconomic Risks

    • Welfare Implications of Remittances

    • Conclusion

    • Appendix 6.1. The Model

    • References

  • VII An Empirical Investigation of the Macroeconomic Effects of Remittances

    • Remittances and GDP Growth

    • Remittances and Macroeconomic Volatility

    • Workers’ Remittances and the Equilibrium Real Exchange Rate

    • Remittances, Fiscal Policy, and Debt Sustainability

    • Appendix 7.1. Data Definitions, Sources, and Coverage

    • References

  • VIII Policy Implications

    • Policy Implications of Remittances

    • References

  • Boxes

    • 7.1. Remittances and Fiscal Sustainability

    • 7.2. Remittances and External Sustainability

  • Tables

    • 2.1. Summary Business Cycle Correlations

    • 2.2. Business Cycle Correlations: Subsample

    • 3.1. Emerging Economies: Workers’ Remittances

    • 3.2. Developing Countries: Workers’ Remittances in Relation to Selected Balance of Payments Inflows

    • 3.3. Emerging Economies: Volatility of Workers’ Remittances in Comparison to Selected Balance of Payments Inflows

    • 3.4. Emerging Economies: Correlations Between Workers’ Remittances and Other Selected Balance of Payments Inflows

    • 3.5. Emerging Economies: Selected Macroeconomic Variables Across Percentiles of Workers’ Remittances, 1995–2004

    • 4.1. Determinants of Workers’ Remittances, 1970–2005

    • 4.2. Determinants of Workers’ Remittances, 1985–2005

    • 4.3. Determinants of Workers’ Remittances, 2001–2005

    • 6.1. Steady-State Values Under Labor Taxation

    • 6.2. Steady-State Values Under Consumption Taxation

    • 6.3. Standard Deviation of Calibrated Chile Economies

    • 6.4. Utility Gains from Consumption Taxation Versus Labor Taxation

    • 7.1. OLS and Fixed-Effects Regressions Explaining Per Capita GDP Growth as a Function of Workers’ Remittances and Different Conditioning Sets, All Countries

    • 7.2. OLS and Fixed-Effects Regressions Explaining Per Capita GDP Growth as a Function of Workers’ Remittances and Different Conditioning Sets, Emerging Economies

    • 7.3. OLS and Fixed-Effects Instrumental Variables Regressions Explaining Per Capita GDP Growth as a Function of Workers’ Remittances and Different Conditioning Sets, All Countries

    • 7.4. OLS and Fixed-Effects Instrumental Variables Regressions Explaining Per Capita GDP Growth as a Function of Workers’ Remittances and Different Conditioning Sets, Emerging Economies

    • 7.5. Cross-Sectional Regression Explaining GDP Volatility as a Function of Workers’ Remittances and Conditioning Variables

    • 7.6. Cointegrating Relations for the Real Exchange Rate, 1960–2004

  • Figures

    • 2.1. Correlation of Workers’ Remittances and Employee Compensation

    • 3.1. Worldwide Workers’ Remittances, 1970–2003

    • 3.2. Workers’ Remittances by Region: Developing Countries, 1980–2003

    • 3.3. Top 20 Recipient Countries: Workers’ Remittances, 2004

    • 3.4. Top 20 Recipient Countries: Average Workers’ Remittances, 1990–2004

    • 3.5. Top 20 Recipient Countries: Ratio of Workers’ Remittances to GDP, 2004

    • 3.6. Top 20 Recipient Countries: Average Ratio of Workers’ Remittances to GDP, 1990–2004

    • 3.7. Workers’ Remittances and Other Inflows to Developing Countries

    • 3.8. Volatility of Inflows to Developing Countries, 1980–2003

    • 3.9. Emerging Economies: Workers’ Remittances, 1995–2004

    • 6.1. Labor Market Dynamics in Response to a Positive Technology Shock

    • 6.2. Remittance-Dependent Economies: Output Volatility and Inflation

    • 7.1. Output Volatility and the Ratio of Workers’ Remittances to GDP

    • 7.2. Remittances and the Equilibrium Real Exchange Rate

    • 7.3. Remittance-Dependent Economies and Fiscal Policy, 1990–2005

The following conventions are used in this publication:

  • In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

  • An en dash (−) between years or months (for example, 2005–06 or January-June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).

  • “Billion” means a thousand million; “trillion” means a thousand billion.

  • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.


Macroeconomic Consequences of Remittances was prepared in response to the growth of cross-country remittance flows and the request of the IMF’s Executive Board for a thorough investigation of remittances and remittance systems, including their effect on poverty and macroeconomic performance. This Occasional Paper is the product of a team led by Ralph Chami of the IMF Institute and composed of Adolfo Barajas of the IMF Institute, Thomas Cosimano of the University of Notre Dame, Connel Fullenkamp of Duke University, Michael Gapen of the IMF Institute, and Peter Montiel of Williams College. Michael Harrup of the External Relations Department edited and coordinated production of the publication.

The authors would like to express their gratitude to Anastasia Guscina for providing outstanding research support and data analysis. The publication of this Occasional Paper would not have been possible without her efforts. The authors would also like to thank Yasser Abdih, Badi Baltagi, Eric Clifton, Jihad Dagher, Andrew Feltenstein, Dalia Hakura, Leslie Lipschitz, and Jens Reinke for helpful comments and suggestions. Deanna Ford, Chi Nguyen, and Pinn Siraprapasiri provided excellent research assistance, and Asmahan Bedri and Yasmina Zinbi provided excellent administrative support. Finally, the authors would like to thank Leslie Lipschitz for providing guidance and support and the IMF Institute for providing financial assistance during the preparation of this paper.

This Occasional Paper should not be reported as representing the views of the IMF. The opinions expressed in this paper are solely those of the authors and do not necessarily reflect the views of the International Monetary Fund or its Executive Directors or IMF policy.

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