International migration,remittances and welfare in a dependent economy

This note extends the work of Rivera-Batiz (1982) in an attempt to examine the role of remittances in determining the effects of migration on the welfare of the remaining residents in a small open economy producing both traded and non-traded goods. It is shown that if the flow of remittances exceeds a certain critical amount, the remaining residents benefit from migration even if they do not receive any of the remittances themselves. This is in sharp contrast with the results of the Rivera-Batiz model in which the possibility of a gain for the non-migrants is ruled out.     

Consumption Effects of Foreign Remittances in Jamaica

The term remittances refers to proceeds from the migration of labor that are sent to aid individuals remaining in the migrants’ home communities. In this paper, we investigate whether remittances alter the consumption pattern of recipient households in Jamaica. We present results from an Engel curve estimation specifically using the Working (1943) approach and a two-part fractional response model with instrumental variables to account for selection bias and endogeneity of remittances. The dependent variables are a subsample of the categories of consumption as defined in the Jamaican Survey of Living Conditions and include expenditures on food, schooling, health, gambling, alcohol and donations. We find that receipt of remittances significantly alters the recipient households’ expenditure allocations relative to other sources of income, although this effect occurs more through the participation decision. Overall, total effects of remittances are largest in the areas of luxury expenditures and home production, and to a lesser extent for education and grocery store purchases. These findings have significant implications for those remitting, those receiving, and governments looking to understand this large flow and less documented source of income.     

The power of remittances on the international prevalence of child labor

This paper examines the relationship between remittance inflows and the prevalence of child labor. It investigates whether remittance inflows offset the effects of financial constraints and income shocks on the prevalence of child labor in receiving economies. Based on a sample of 82 developing countries and after factoring in the endogeneity of remittances, migration, and financial development, econometric results highlight that remittance inflows significantly reduce the prevalence of child labor in developing countries characterized by weak financial systems and high income growth volatility.     

Regional Insurance and Migration

A dynamic model of migration is developed to study whether labor mobility can hedge people against region-specific shocks, making private or public insurance redundant. The model adopts a novel timing for migration, which is argued to be the time frame suitable for analyzing risk-sharing issues. It also innovates on the existing literature by solving individual migration through convexification of the set of actions. The results show that the role of migration as an insurance mechanism is small: labor mobility cannot fully remove income differentials between regions. It is also shown that a fiscal stabilization scheme is, in general, optimal; moreover, any pure risk-sharing mechanism has no influence on migration flows.     

Foreign Debt,Foreign Direct Investment and Volatility

We investigate how foreign debt and foreign direct investment (FDI) affect the growth and welfare of a stochastically growing small open economy. First, we find that foreign debt influences the growth of domestic wealth by lowering the cost of capital, while FDI affects the country's welfare by providing an additional source of permanent income. Second, a decline in domestic investment may improve domestic welfare as FDI replaces the gap. Even when the welfare deteriorates, its magnitude is mitigated, leaving more room for discretionary fiscal policy. Third, a fiscal policy aimed to stabilize domestic output fluctuations needs to be conducted not to crowd out the welfare benefit of FDI too much. Fourth, an economy with both types of foreign capital experiences wider welfare swings by external volatility shocks than the one with foreign debt alone, while the welfare effects from domestic volatility shocks are mitigated. The welfare effects of fiscal shocks are much smaller with both types of foreign capital. Lastly, the first-best labor income tax covers the government absorption by the labor's share of total output, and the capital income tax covers the rest. Investment is penalized or subsidized depending on the social marginal cost-gain differential.     

Government reactions to private substitutes for public goods: Remittances and the crowding-out of public finance

Migrant remittances have been praised as an important source of capital for development. However, one aspect that has been relatively neglected so far is: How do governments respond to the inflow of remittances? This research claims that remittances crowd out public finance, because governments enjoy higher approval rates in the presence of remittances without the need to buy electoral support and face lower pressure for increasing public spending when private substitutes exist. Empirical evidence for this hypothesis is provided from subnational public finances in Mexico, using exogenous variation in migrants’ exposure to U.S. labor market conditions as an instrument for remittances. The panel analysis of trends in municipal budgets reveals that state governments responded to the inflow of resources by allocating funds away from municipalities with a stronger presence of remittances. This is true for private remittances as well as for collective remittances, i.e. cases in which migrants and public actors jointly finance public spending via matching grant schemes. The effect is driven by poorer municipalities and is stronger in states governed by the traditional party PRI that has been associated with a long history of clientelistic rule.     

Comparative effects of migrants’ remittances on composition of recipient household income in two small,island economies

We use unique household survey data from Fiji and Tonga to estimate and compare the combined impact of migration and remittances on the composition of household income. A two-step methodology is followed employing a migration prediction model followed by the estimation of a Three Stage Least Squares (3SLS) remittances and income equation system. We find that remittances contribute to growth in productive capital and entrepreneurial activity in the longer-established migrant economy, but have yet to impact on business activity in the more recently remittances-oriented economy, despite it having a more developed, market economy. In the latter case, remittances seem more linked to supporting consumption through supplementing low wage income. These findings suggest that the duration and intensity of remittance-driven migration, and the structure of economic activity within a community are important in understanding the influences of migration and remittances on household resource allocation and production decisions.     

Aggregate demand shocks and economic growth

The traditional view of growth and fluctuations implies that aggregate demand shocks result in only transitory departures from trend or “normal” output, which is determined exclusively by aggregate supply factors. Using a simple dynamic framework for a less-developed economy, a series of models is developed to show that aggregate demand can have a permanent effect on economic growth. It is shown that even if the economy converges to some “normal” path, this path itself may be altered by large demand shocks, due to increasing returns and hysteresis effects in labor markets and balance of payments constraints. It is also shown that the economy may not converge to its “normal” path, in which case fiscal and monetary policy will have long-term effects on output and growth.     

影响欧元区经济增长的因素分析

除2001年以外,欧元区的经济增长水平一直低于世界发达经济体。根本原因是其技术进步相对落后,劳动力市场僵化,失业率居高不下。以价格稳定为首要目标的单一货币政策,有利于其宏观经济稳定,但在一定程度上制约了经济的快速增长;共同财政纪律,有利于其经济顺利推进,但是削弱了各成员国运用财政政策抵御国内经济周期性振荡以及外部经济失衡的能力,尤其在经济衰退时期限制了各国利用扩张性财政政策刺激经济的手段。     

Worker remittances,migration, accumulation and growth in poor developing countries: Survey and analysis of direct and indirect effects

A broad but brief survey of the literature on remittances and growth shows that indirect effects are only included via interaction terms. Then, we regress data for migration, worker remittances, savings, investment, tax revenues, public expenditure on education, interest rates, literacy, labor force growth, development aid and GDP per capita growth on migration, remittances and other variables for a panel of countries with income below $1200. The estimated dynamic equations are integrated to a system used for baseline simulations. Comparison with the counterfactual policy simulations ‘only 50% remittances’ or ‘no net migration anymore’ shows that the total effect of remittances on levels and growth rates of GDP per capita, investment and literacy are positive, and that of net migration is negative for literacy and investment but positive for growth.     

Variation in the fiscal multiplier with the method of financing: evidence across industrial countries

Government spending has often varied with the business cycle to stimulate the economy and to revive economic conditions. However, the state of public finances has often necessitated higher borrowing to finance widening fiscal deficits. Indeed, recent austerity packages around the globe have crystalized the importance of fiscal consolidation against the backdrop of rising public debt. To shed light on recent debates regarding fiscal multipliers, the article estimates variation in these multipliers with the method of financing, using annual data for a sample of industrial countries. There is a large variation in the effects of expansionary and contractinary government spending shocks on economic variables within and across countries. The significant effects of negative government spending shocks (fiscal contraction) appear more prevalent than those of expansionary shocks on real output growth, price inflation and nominal wage inflation. Consistent with theory’s predictions, the fiscal multiplier is more likely to be negative when government spending is financed by issuing debt and less likely in the case of monetization. The evidence confirms concerns about the negative effect of higher debt and more expensive financing on private activity, countering the effectiveness of fiscal policy.     

Equilibrium migration with invested remittances: The EECA evidence

This paper analyzes international migration when migrants invest part of their income in their country of origin. We show that a non-total migratory equilibrium exists. Exogenous shocks, such as an increase in migrant income, lead to an increase in optimal invested remittances per migrant, and a higher wage in the country of origin. Yet the net effect on the equilibrium number of migrants is positive. Hence, in equilibrium, emigrants' optimal invested remittances and number of migrants are positively related. We use data from twenty five countries in Eastern Europe and Central Asia in 2000 to test for this implication of our model. OLS and bootstrap estimates reveal a positive elasticity of the number of migrants with respect to estimated invested remittances per migrant in the range of [0.3; 0.7].     

劳动无限供给下中国的经济波动

本文构建了一个劳动力长期供给具有无限弹性的总供求模型,模型的核心特点是长期总供给曲线不是垂直而是向右上倾斜.根据该模型,本文认为,农业部门存在剩余劳动而使非农部门具有无限弹性的劳动供给,是改革开放以来中国经济波动出现"软着陆"、"紧缩增长"和"高增长低通胀"等现有理论难以解释的特殊现象的根本原因,并使经济波动对就业的影响主要表现为劳动力转移速度的波动而非城镇失业率的变化.     

Productivity differences and inter-state migration in the U.S.: A multilateral gravity approach

In this paper, we study the quantitative role of productivity differences in explaining migration in presence of multiple destination choices. We construct a dynamic general equilibrium model with multi-region, multi-sector set-up where labor is a mobile input, which adjusts to regional and sectoral productivity shocks, resulting in migration across regions. The proposed model generates a migration network where the flow of migrants between any two regions follows a gravity equation. We calibrate the model to the U.S. data and we find that variation in industrial and regional total factor productivity shocks explains about 63% of the interstate migration in the U.S. Finally, we perform comparative statics to estimate the effects of long-run structural changes on migration. We find that capital intensity of the production process and the demand for services over manufactured goods negatively impact aggregate level of migration whereas asymmetries in trade patterns do not appear to have substantial effects.     

Macroeconomic effects of international remittances: The case of developing economies

Over the past few decades international workers' remittances have significantly contributed to the foreign exchange reserves of the developing countries. While these household level remittance flows have often been associated with poverty alleviation, positive welfare gains and even as an alternate source of development finance, a detailed study of the effects of these flows on a remittance-dependent small developing economy, however shows counterintuitive results. The paper applies the Dutch Disease theory to explain the effects of remittances on the economy and introduces a micro–macro framework to establish channels of transmission of remittances through the economy. The paper shows that international remittances, by altering the household budget constraint, have a direct impact on the micro level household decision making, primarily with respect to the consumption and labor supply decisions. These when aggregated give rise to significant adjustments in the macro level production functions and consumption behaviors, leading to a decline in the output, particularly of the trading sector and an adverse impact on the external sector of the economy.     

The identification of fiscal and monetary policy in a structural VAR

Good economic management depends on understanding shocks from monetary policy, fiscal policy and other sources affecting the economy and their subsequent interactions. This paper presents a new methodology to disentangle such shocks in a structural VAR framework. The method combines identification via sign restrictions, cointegration and traditional exclusion restrictions within a system which explicitly models stationary and non-stationary variables and accounts for both permanent and temporary shocks. The usefulness of the approach is demonstrated on a small open economy where policy makers are actively considering the interaction between monetary and fiscal policies.     

MONETARY AND FISCAL POLICY EFFICIENCY AND COORDINATION IN A MULTI‐SECTOR OPEN‐ECONOMY GENERAL EQUILIBRIUM MODEL

The paper analyzes monetary and fiscal stabilization and coordination in a multi‐sector stochastic new open economy macroeconomics (NOEM) model. It first aims to assess the capacity of fiscal and monetary policy to reduce or eliminate the negative welfare effects of an unanticipated productivity shock affecting some or all of the sectors in each country. Second, it evaluates the possible gains from international monetary cooperation as well as the impact of active fiscal policy on the welfare performance of monetary policy. The setup also allows for international asymmetry concerning the uncertainty over the shocks. The results show that monetary and fiscal policies are efficient tools of stabilization and under several conditions they can replicate the flexible‐price equilibrium. However, their welfare performance is not necessarily increased when both monetary and fiscal policies react to shocks at the national level. The existence of bilateral gains from monetary cooperation depends on the degree of asymmetry concerning the uncertainty over the shocks.     

Migrant remittances and fertility

This study examines the role of migrants’ remittances in developing countries’ fertility transition. Employing an unbalanced panel of South Asian countries and controlling for various economic and socio-demographic factors, we find that remittances are significantly associated with a lower number of children born to women of childbearing age. This suggests the remittances’ substitution effect to be at play rather than the income effect, and may result from decreased need for children for financing the household’s future needs as well as from better access to healthcare and contraceptive methods available to migrant households. Remittances’ association with fertility appears to be more important than the transfer of fertility norms from migrants’ host countries. The monetary aspects of international migration may therefore be more important for the region’s demographic transition than social remittances.     

Foreign aid and economic growth: The role of flexible labor supply

This paper examines the link between foreign aid, economic growth, and welfare in a small open economy. External transfers impinge on the recipient's macroeconomic performance by affecting resource allocation decisions and relative prices. The endogeneity of the labor–leisure choice plays a crucial role in the propagation of foreign aid shocks. The efficacy of foreign aid also depends on externalities associated with the public good that it helps finance. The impact of tied and untied aid on the recipient government's intertemporal fiscal balance is examined. Finally, the transitional adjustment to a foreign aid shock is shown to be sensitive to the elasticity of substitution in production and the relative importance of the labor–leisure choice in utility.     

Swedish Postwar Business Cycles: Generated Abroad or at Home?

The relative importance of foreign and domestic shocks for the Swedish postwar business cycle is examined in a neoclassical stochastic growth model of a small open economy. Since recent research has shown that fiscal policy shocks may be important for business cycles, I extend previous work in the literature by allowing for stochastic fiscal policy. It is found that the introduction of fiscal policy improves the empirical fit of the model, although not significantly so when hours worked are detrended with the HP filter. The results suggest that domestic shocks are more important than foreign shocks for output fluctuations. Among the domestic shocks, innovations in fiscal policy seem to have been more important than technology shocks during this period. Foreign shocks are very important for fluctuations in the real exchange rate and the current account.