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Do remittances boost economic development? Evidence from Mexican states

Pia Orrenius (), Madeline Zavodny (), Jesus Cañas () and Roberto Coronado ()

No 1007, Working Papers from Federal Reserve Bank of Dallas

Abstract: Remittances have been promoted as a development tool because they can raise incomes and reduce poverty rates in developing countries. Remittances may also promote development by providing funds that recipients can spend on education or health care or invest in entrepreneurial activities. From a macroeconomic perspective, remittances can boost aggregate demand and thereby GDP as well as spur economic growth. However, remittances may also have adverse macroeconomic impacts by increasing income inequality and reducing labor supply among recipients. We use state-level data from Mexico during 2003–07 to examine the aggregate effect of remittances on employment, wages, unemployment rates, the wage distribution, and school enrollment rates. While employment, wages and school enrollment have risen over time in Mexican states, these trends are not accounted for by increasing remittances. However, two-stage least squares specifications among central Mexican states suggest that remittances shift the wage distribution to the right, reducing the fraction of workers earning the minimum wage or less.

Keywords: Emigrant remittances - Latin America; Economic development - Latin America; Economic conditions - Mexico; Labor market; Income distribution; Emigration and immigration (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-lab and nep-mig
Date: 2010
Note: Published as: Orrenius, Pia M., Madeline Zavodny, Jesus Cañas and Roberto Coronado (2010), "Do Remittances Boost Economic Development? Evidence From Mexican States," Law and Business Review of the Americas 16 (4): 803-822.
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Handle: RePEc:fip:feddwp:1007