The working paper entitled 'Do Workers’ Remittances Promote Economic Growth?' was prepared by Adolfo Barajas, Ralph Chami, Connel Fullenkamp, Michael Gapen and Peter Montiel.

The findings of this paper echo the recent criticisms of foreign aid presented by Rajan and Subramanian (2005) and others, who point out that there is very little evidence that decades of official transfers have contributed much to the growth of developing economies.

Similarly, the findings of the paper suggest that decades of private income transfers—remittances—have contributed little to economic growth in remittance-receiving economies and may have even retarded growth in some.

When remittances are properly measured, and when the growth equations are well specified and instrumented, we cannot find a robust and significant positive impact of remittances on long-term growth, and often find a negative relationship between remittances and growth.

Perhaps the most persuasive evidence in support of this finding is the lack of a single example of a remittances success story: a country in which remittances-led growth contributed significantly to its development. Given that some countries’ remittance receipts exceeded 10% of GDP for long periods of time, we should expect to find at least one example of this phenomenon during the past four decades. But no nation can credibly claim that remittances have funded or catalyzed significant economic development.

The lack of empirical or anecdotal evidence linking remittances to growth should lead policymakers to reconsider their optimistic views of remittances and move toward a more realistic understanding of their effects. Part of the reason why remittances have not spurred economic growth is that they are generally not intended to serve as investments but rather as social insurance to help family members finance the purchase of life’s necessities.

Remittances lift people out of poverty but they do not typically turn their recipients into entrepreneurs. The intriguing possibility remains that remittances can be channeled somehow into achieving both of these ends, but this will require a better understanding of the role that remittances play in their recipients’ lives, and institutions that can help recipients of remittances make the most of the transfers they receive.#