Macroeconomic Role of Remittances

Abstract

This thesis examines in a form of a literature review the impact of remittances on the economy of the recipient countries. First I describe models which explain how the allocation of remittances can have two opposite effects, either contractionary or expansionary. I then further examine existing empirical studies conducted on the impact of remittances on labor force participation, but also on poverty elevation and inequality, and discuss why mainly the contractionary effect is observed in real life. At the end I discuss implications for policymakers which arise from the described findings. This thesis examines in a form of a literature review the impact of remittances on the economy of the recipient countries. First I describe models which explain how the allocation of remittances can have two opposite effects, either contractionary or expansionary. I then further examine existing empirical studies conducted on the impact of remittances on labor force participation, but also on poverty elevation and inequality, and discuss why mainly the contractionary effect is observed in real life. At the end I discuss implications for policymakers which arise from the described findings.