Impact of Remittances in Developing Economies: Effects on Productivity

Open Access
Author:
Chen, Liang Wen
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Alessandro Dovis, Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
Keywords:
  • Remittances
  • productivity
  • developing
  • economies
  • Balassa
  • Samuelson
  • Hypothesis
  • BSE
Abstract:
Remittances are important to developing economies. With the number of remittances and migrants increasing every year, the impact of remittances has still yet to be pinpointed. Prior research has shown that increases in remittances are less impactful than losses in remittances for developing countries for GDP. They provide increased investment and consumption thresholds for families. In this thesis, we used a regression analysis to determine how remittances impact productivity of developing countries. Then the countries were analyzed based on standard of living, infrastructure and labor force. These countries were selected based on their reliance on remittances which is based on percent of GDP. Results indicate that this relationship differs from country to country and overall standard of living. Countries with a lower remittance to GDP ratio and standard of living are found to be more reliant on remittances than countries with a higher remittance to GDP ratio. Results indicate that even though developing economies are heavily reliant on remittances, the relationship between productivity and remittances is nonexistent due to households spending most of their remittance on present consumption. In order for countries to increase productivity households have to allocate some of their remittances to be invested back into the economy (i.e. starting a business). This was found to be true throughout the developing economies.