Remittances and the dynamics of human capital in the recipient country

Simone Bertoli ()

Department of Economics Working Papers from University of Turin

Abstract: This paper provides an analysis of the impact of migration and remittances on the inter-generational evolution of human capital in an economy that is characterized by the existence of a poverty trap at a low level of human capital. The analysìs is conducted within an overiapping generation model, where parental investment in education are driven by weakly altruistic motivations. Remittances boost educational expenditure in recipient households, and they can determine a decisive impact on the long-term dynamics of human capitai under favourabie assumptions on the wage differential and on migration costs. Under these assumptions, an exogenous probability to migrate represents an equal probabìlity of moving out of the poverty trap, that fades away in the long run, as remittances lead ali households to converge towards the equilíbríum at a high level of human capítal. Although this modei does not analyze the generai equilibrium effects of remittances - as it ìs grounded on the independence of households' dynamics - it provides a framework that is open to such an extension, that is called for by the literature on the Dutch Disease effects of remittances.

New Economics Papers: this item is included in nep-dev, nep-edu and nep-hrm
Date: 2006-07
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