Worker remittances, migration, accumulation and growth in poor developing countries

The impact of migration and worker remittances on literacy, accumulation of capital and growth is analyzed for a panel of countries with per capita income below $1200 (2000). We estimate regressions for dynamic equations of migration, worker remittances, savings, investment, tax revenues, public expenditure on education, interest rates, literacy, labour force growth, development aid and GDP per capita growth, using dynamic panel data methods. The estimated equations are then integrated to a dynamic system that allows for simulations using the whole integrated system allowing conceptually for the open economy aspects aid, trade, capital movements and migration. The linear-quadratic impact of the income difference between rich and poor countries on remittances and migration generates some highly non-linear results in the baseline simulation. Then we analyze the counterfactuals "remittances send only 50%" or "no net migration". The results for the direct effects are that emigration lowers savings and labour force growth. The total effect of net migration on GDP per capita is to increase the growth rate until 2150 and the effect on levels runs up to 7% above the baseline value. Remittances enhance savings, public expenditures on education and growth, but reduce tax revenues and emigration. These latter two effects, however, are outweighed by the indirect effect of remittances on savings, which have a strongly positive impact on tax revenues and emigration, indicating that conclusions from single equation regressions maybe misleading and indirect effects may dominate for some variables or strongly reduce the direct effects. The total effect of remittances on levels and growth rates of GDP per capita, investment and literacy are positive.