Skip to main content

Do Remittances Matter in Accelerating Labour Productivity and Capital Accumulation?

  • Chapter
  • First Online:
Development Finance

Abstract

In this paper, we examine the effect of remittances on labour productivity and capital accumulation through various channels. Our panel includes 25 African countries with data from 1990 to 2013. We employ the two-step generalized methods of moments estimator. The main results from this study are that remittances on their own do promote labour productivity but not capital accumulation. Indeed, remittances are observed to have a positive impact on labour productivity and a negative impact on capital accumulation. Moreover, remittances do not promote labour productivity in the presence of high natural resource endowment. The effect of remittances on labour productivity is not clear when we interact remittances with life expectancy. Further, remittances tend to promote capital accumulation in the presence of high quality human capital.

Policies that promote remitting through formal channels will aid directing remittance inflows into productive investments thus encouraging labour productivity.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 109.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 139.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 139.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Similar content being viewed by others

Bibliography

  • Acosta, Pablo A. 2006. Labour supply, school attendance and remittances from international migration: the case of El Salvador. In World Bank Policy Research Working Papers, No. 3903. Washington, DC: The World Bank.

    Google Scholar 

  • Acosta, Pablo A., Pablo Fajnzylber and J. Humberto Lopez. 2007. The impact of remittances on poverty and human capital: evidence from Latin American household surveys. In International Migration, Economic Development and Policy, edited by C. Özden and M. Schiff, 59–98. Washington, DC: The World Bank and Palgrave Macmillan.

    Google Scholar 

  • Acosta, Pablo A., Emmanuel K.K. Lartey, Federico S. Mandelman. 2009. Remittances and the Dutch disease. Journal of International Economics 79 (1):102–116. http://dx.doi.org/10.1016/j.jinteco.2009.06.007. Accessed 1 December 2016.

    Article  Google Scholar 

  • Adams, Richard H. Jr. 1993. The economic and demographic determinants of international migration in rural Egypt. Journal of Development Studies 30 (1): 146–167.

    Article  Google Scholar 

  • Adams, Richard H. Jr., and John Page. 2005. Do international migration and remittances reduce poverty in developing countries? World Development 33 (10):1645–1669.

    Article  Google Scholar 

  • Adams, Richard H. Jr., and Alfredo Cuecuecha. 2010. Remittances, household expenditure and investment in Guatemala. World Development 38 (11): 1626–1641

    Google Scholar 

  • Adenutsi, Deodat E. 2010. Do international remittances promote human development in poor countries? Empirical evidence from Sub-Saharan Africa. The International Journal of Applied Economics and Finance 4 (1):31–45. https://mpra.ub.uni-muenchen.de/29347/. Accessed 28 November 2016.

    Article  Google Scholar 

  • AfDB. 2013. Africa’s Mineral Wealth: A Blessing or a Curse. AfDB blog, 7 October 2013. http://www.afdb.org/en/blogs/this-is-africas-hour/post/africas-mineral-wealth-a-blessing-or-a-curse-12336/. Accessed 28 November 2016.

  • AfDB. 2015. African Natural Resource Center. Draft Strategy for 2015–2020. Abidjan: Afican Development Bank, African Natural Resources Center.

    Google Scholar 

  • Aggarwal, Reena, and Andrew W. Horowitz. 2002. Are international remittances altruism or insurance? Evidence from Guyana using multiple-immigrant households. World Development 30 (11):2033–2044.

    Article  Google Scholar 

  • Aggarwal R, Demirgüç-Kunt A, Martínez P, Maria S. 2010. Do workers’ remittances promote financial development? Journal Development Economics 96:255–264. doi: 10.1016/j.jdeveco.2010.10.005

    Article  Google Scholar 

  • Alkire, Sabina, Adriana Conconi, Gisela Robles, and Suman Seth. 2015. Multidimensional poverty index—winter 2014/2015: brief methodological notes and results. In OPHI Briefings, No. 27. Oxford: University of Oxford, Oxford Department of International Development.

    Google Scholar 

  • Al Mamun, Md., Kazi Sohag, Gazi Salah Uddin, and Muhammad Shahbaz. 2015. Remittance and domestic labour productivity: evidence from remittance recipient countries. Economic Modelling 47:207–218.

    Article  Google Scholar 

  • Al Mamun, Md., Kazi Sohag, Nahla Samargandi, and Farida Yasmeen. 2016. Does remittance fuel labour productivity in Bangladesh? The application of an asymmetric non-linear ARDL approach. Journal of Applied Economics 48 (50):4861–4877.

    Article  Google Scholar 

  • Amuedo-Dorantes, Catalina, and Susan Pozo. 2006. Remittances as insurance: evidence from Mexican immigrants. Journal of Population Economics 19 (2):227–254.

    Article  Google Scholar 

  • Amuedo-Dorantes, Catalina, and Susan Pozo. 2014. When do remittance facilitate asset accumulation? The importance of remittance income uncertainty. In IZA Discussion Papers, No 7983. Bonn: The Institute for the Study of Labour.

    Google Scholar 

  • Amuedo-Dorantes, Catalina, Annie Georges, and Susan Pozo. 2008. Migration, remittances and children’s schooling in Haiti. In IZA Discussion Papers, No. 3657. Bonn: The Institute for the Study of Labour.

    Google Scholar 

  • Arellano, Manuel, and Stephen R. Bond. 1988. Dynamic panel data estimation using DPD—a guide for users. In IFS Working Paper Series, No. 88/15. London: The Institute for Fiscal Studies.

    Google Scholar 

  • Arellano, Manuel, and Olympia Bover. 1995. Another look at the instrumental variable estimation of error component models. Journal of Econometrics 68 (1):29–51.

    Article  Google Scholar 

  • Baldé, Yéro. 2011. The impact of remittances and foreign aid on savings/investment in Sub-Saharan Africa. African Development Review 23 (2):247–262.

    Article  Google Scholar 

  • Barajas, Adolfo, Ralph Chami, Connel Fullenkamp, Michael R. Gapen, and Peter Montiel. 2009. Do workers’ remittances promote economic growth? In IMF Working Papers, No. 09/153. Washington, DC: International Monetary Fund, Middle Eastern and Central Asia Department

    Google Scholar 

  • Barro, Robert J. 1991. Human capital and economic growth economics. Quarterly Journal of Economics 106 (2):407–443.

    Article  Google Scholar 

  • Baltagi, Badi H., and Chihwa Kao. 2000. nonstationary panels, cointegration in panels and dynamic panels: a survey. In Center for Policy Research Working Papers, No. 16. New York, NY: Syracuse University, Maxwell School of Citizenship and Public Affairs, Center for Policy Research.

    Google Scholar 

  • Bayangos, Veronica, and Karel Jansen. 2011 Remittances and competitiveness: the case of the Philippines. World Development 39 (10):1834–1846.

    Article  Google Scholar 

  • Bredl, Sebastian. 2011. Migration, remittances and educational outcomes: the case of Haiti. International Journal of Educational Development 31 (2):162–168.

    Article  Google Scholar 

  • Bornhorst, Fabian, Sanjeev Gupta, and John Thornton. 2008. Natural resource endowments, governance, and the domestic revenue effort: evidence from a panel of countries. In IMF Working Papers, No. 08/170. Washington, DC: International Monetary Fund, Fiscal Affairs Department.

    Google Scholar 

  • Bourdet, Yves, and Hans Falck. 2006. Emigrants’ remittances and Dutch Disease in Cape Verde. International Economic Journal 20 (3):267–284. http://dx.doi.org/10.1080/10168730600879323. Accessed 1 December 2016.

    Article  Google Scholar 

  • Caballé, Jordi, and Manuel S. Santos. 1993. On endogenous growth with physical and human capital. Journal of Political Economy 101 (6): 1042–1067.

    Article  Google Scholar 

  • Calero, Carla, Arjun S. Bedi, and Robert Sparrow. 2009. Remittances, liquidity constraints and human capital investments in Ecuador. World Development 37 (6):1143–1154

    Article  Google Scholar 

  • Chami, Ralph, Connel Fullenkamp, and Samir Jahjah. 2003. Are immigrant remittance flows a source of capital for development? In IMF Working Papers, No. 03/189. Washington, DC: International Monetary Fund.

    Google Scholar 

  • Chami, Ralph, Connel Fullenkamp, and Samir Jahjah. 2005. Are immigrant remittance flows a source of capital for development? IMF Staff Papers 52 (1):55–81.

    Google Scholar 

  • Chiodi, Vera, Esteban Jaimovich, and Gabriel Montes-Rojas. 2012. Migration, remittances and capital accumulation: evidence from rural Mexico. Journal of Development Studies 48 (8):1139–1155.

    Article  Google Scholar 

  • Collier, Paul. 2006. Is aid oil? An analysis of whether Africa can absorb more aid. World Development 34 (9):1482–1497.

    Article  Google Scholar 

  • Collier, Paul, and Anke Hoeffler. 2005. Democracy and resource rents. In GPRG Working Papers, No. GPRG-WPS-016. Oxford: Oxford University, Department of Economics.

    Google Scholar 

  • Dustmann, Christian, and Oliver Kirchkamp. 2002. The optimal migration duration and activity choice after re-migration. Journal of Development Economics 67 (2):351–372.

    Article  Google Scholar 

  • Dzeha, Gloria Clarissa O. 2016. The decipher, theory or empirics: a review of remittance studies. African Journal of Accounting, Auditing and Finance 5 (2):113–134.

    Article  Google Scholar 

  • Edwards, Alejandra Cox, and Manuelita Ureta. 2003. International migration, remittances, and schooling: evidence from El Salvador. Journal of Development Economics 72 (2):429–461.

    Article  Google Scholar 

  • Fishlow, Albert. 1966. Levels of nineteenth-century American investment in education. Journal of Economic History 26 (4):418–436.

    Article  Google Scholar 

  • Giuliano, Paola, and Marta Ruiz-Arranz. 2005. Remittances, financial development, and growth. In IMF Working Papers, No. 05/234. Washington, DC: International Monetary Fund.

    Google Scholar 

  • Graca, J., Saqib J., and Apostolis P., 1995. Interaction of human and physical capital in a model of endogenous growth. Economics of Planning 28:93–118.

    Article  Google Scholar 

  • Guha, Puja. 2013. Macroeconomic effects of international remittances: the case of developing economies. Economic Modelling 33:292–305.

    Article  Google Scholar 

  • Gupta, Sanjeev, Catherine Patillo, and Smita Wagh. 2007. Making remittances work for Africa. Finance and Development, A quarterly magazine from the IMF 44 (2).

    Google Scholar 

  • Gupta, Sanjeev, Catherina A. Patillo, and Smita Wagh. 2009. Effect of remittances on poverty and financial development in sub-Saharan Africa. World Development 37 (1):104–115.

    Article  Google Scholar 

  • Hanson, Gordon H., and Christopher Woodruff. 2003. Emigration and Educational Attainment in Mexico. San Diego, CA: University of California.

    Google Scholar 

  • Harrod, Roy Forbes. 1959. Domar and dynamic economics. The Economic Journal 69 (275):451–464.

    Article  Google Scholar 

  • Hossain, Delwar. 2013. Differential impacts of foreign capital and remittance inflows on domestic savings in developing countries: a dynamic heterogeneous panel analysis. Economic Record 90 (1):102–126.

    Google Scholar 

  • León-Ledesma, Miguel, and Matloob Piracha. 2004. International migration and the role of remittances in Eastern Europe. International Migration 42 (4):65–83.

    Article  Google Scholar 

  • Mesnard, Alice. 2004. Temporary migration and capital market imperfections. Oxford Economic Papers 56 (2):242–262.

    Article  Google Scholar 

  • Moore, Mick. 1998. Death without taxes: democracy, state capacity and aid dependence in the fourth world. In The Democratic Development State: Politics and Institutional Design, edited by M. Robinson and G. White. Oxford: Oxford University Press.

    Google Scholar 

  • Moore, Mick. 2007. How does taxation affect the quality of governance? In IDS Working Papers, No. 280. Brighton: University of Sussex, Institute of Development Studies.

    Google Scholar 

  • Neter, John, Wasserman, William, and Michael Kutner. 1985. Applied Linear Statistical Models. Homewood, IL: Richard D. Irwin, Inc.

    Google Scholar 

  • Nishat, Mohammed, and Nighat Bilgrami. 1991. The impact of migrant worker’s remittances on Pakistan economy. Pakistan Economic and Social Review 29 (1):21–41.

    Google Scholar 

  • Nyamongo E.M., and Misati R. N. 2011. Remittances and banking sector development in Sub Saharan African. A paper presented at the global development forum, Dubai.

    Google Scholar 

  • Nyamongo, Esman Morekwa, Roseline N. Misati, Leonard Kipyegon, and Lydia Ndirangu. 2012. Remittance, financial development and economic growth in Africa. Journal of Economic Business 64 (3):240–260. http://dx.doi.org/10.1016/j.jeconbus.2012.01.001. Accessed 28 November 2016.

    Article  Google Scholar 

  • Osabuohien, Evans Stephen, and Uchenna Rapuluchukwu Efobi. 2013. Africa’s money in Africa. South African Journal of Economics 81 (2):292–306.

    Article  Google Scholar 

  • Osili, Una Okonkwo. 2007. Remittances and savings from international migration: theory and evidence using a matched sample. Journal of Development Economics 83 (2):446–465.

    Article  Google Scholar 

  • Quartey, P. and T. Blankson. 2004, Do Migrant Remittances Minimize the Impact of Macro volatility on the Poor in Ghana? Report to GDN.

    Google Scholar 

  • Rapoport, Hillel, and Frédéric Docquier. 2006. The economics of migrants’ remittances. Handbook of the Economics of Giving, Altruism and Reciprocity 2:1135–1198.

    Article  Google Scholar 

  • Ratha, Dilip. 2003. Workers’ remittances: An important and stable source of external development finance. In Global Development Finance 2003. Striving for Stability in Development Finance, 157–175. Washington, DC: The World Bank.

    Google Scholar 

  • Ratha, Dilip, Gemechu Ayana Aga, and Ani Silwal. 2012. Remittances to developing countries will surpass $400 billion in 2012. In Migration and Development Briefs, No. 19. Washington, DC: The World Bank.

    Google Scholar 

  • Ratha, Dilip, Supriyo De, Ervin Dervisevic, Christian Eigen-Zucchi, Sonia Plaza, Hanspeter Wyss, Soonhwa Yi, and Seyed Reza Yousefi. 2014. Migration and remittances: recent developments and outlook. In Migration and Development Briefs, No. 22. Washington, DC: The World Bank.

    Google Scholar 

  • Ratha, Dilip, Supriyo De, Ervin Dervisevic, Sonia Plaza, Kirsten Schuettler, William Shaw, Hanspeter Wyss, Soonhwa Yi, and Seyed Reza Yousefi. 2015. Migration and remittances: recent developments and outlook. Special topic: financing for development. In Migration and Development Briefs, No. 24. Washington, DC: The World Bank.

    Google Scholar 

  • Rajan, Raghuram G., and Arvind Subramanian. 2005. What undermines aid’s impact on growth? In IMF Working Papers, No. 05/126. Washington, DC: International Monetary Fund. And NBER Working Papers, No. 11657. Cambridge, MA: National Bureau of Economic Research.

    Google Scholar 

  • Rodriguez, Edgard R., and Erwin R. Tiongson. 2001. Temporary migration overseas and household labour supply: evidence from urban Philippines. The International Migration Review 35 (3):709–725.

    Article  Google Scholar 

  • Romer, P. 1993. Idea gaps and object gaps in economic development. Journal of Monetary Economics 32 (3):543–573.

    Article  Google Scholar 

  • Sachs, Jeffrey. 2005. The End of Poverty: Economic Possibilities for Our Time. New York, NY: Penguin Press.

    Google Scholar 

  • Shahbaz, M., Muhammed, N.Q., and Naveed, A., 2007. Determinants of workers remittance; Implication for poor people of Pakistan. European Journal of Scientific Research 25 (1):130–144

    Google Scholar 

  • Sofranko, A.J., and Khan Idris. 2009. Use of overseas migrants’ remittances to the extended family for business investment: a research note. Rural Sociology 64 (3):464–481.

    Article  Google Scholar 

  • Solow, Robert M. 1956. A contribution to the theory of economic growth. Quarterly Journal of Economics 70 (1):65–94.

    Article  Google Scholar 

  • Ssozi, John, and Simplice A. Asongu. 2015. The effect of remittances on output per worker in Sub-Saharan Africa: a production function approach. South African Journal of Economics 84 (3):400–421.

    Article  Google Scholar 

  • Taylor, J. Edward, and Tom Jeffrey Wyatt. 1996. The shadow value of migrant remittances, income and inequality in a household-farm economy. Journal of Development Studies 32 (6):899–912.

    Article  Google Scholar 

  • Vargas-Silva, Carlos. 2009. Crime and remittance transfers. Eastern Economic Journal 35 (2):232–247. http://www.jstor.org/stable/20642480. Accessed 1 December 2016.

    Article  Google Scholar 

  • Vlase, Ionela. 2013. Women’s social remittances and their implications at household level: a case study of Romanian migration to Italy. Migration Letters 10 (1):81–90.

    Google Scholar 

  • Woodruff, Christopher, and Rene Zenteno. 2007. Migration networks and microenterprises in Mexico. Journal of Development Economics 82 (2):509–528.

    Article  Google Scholar 

  • World Bank. 2016. Remittances to developing countries edge up slightly in 2015. In World Bank Press Releases, 13 April 2016. Washington, DC: The World Bank.

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Gloria Clarissa O. Dzeha .

Editor information

Editors and Affiliations

Appendices

Appendices

Appendix 9.1 Sampled African countries and their labour productivity growth
Appendix 9.2 Control variables

Rights and permissions

Reprints and permissions

Copyright information

© 2017 The Author(s)

About this chapter

Cite this chapter

Dzeha, G.C.O., Abor, J.Y., Turkson, F.E., Agbloyor, E.K. (2017). Do Remittances Matter in Accelerating Labour Productivity and Capital Accumulation?. In: Biekpe, N., Cassimon, D., Mullineux, A. (eds) Development Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-54166-2_9

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-54166-2_9

  • Published:

  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-54165-5

  • Online ISBN: 978-3-319-54166-2

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics