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Are Immigrant Remittance Flows a Source of Capital for Development
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TL;DR: In this paper, the authors developed a framework that links the motivation for remittances with their effect on economic activity and showed that remittance has a negative effect on the economic growth.
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Abstract: The role of remittances in development and economic growth is not well understood. This is partly because the literatures on the causes and effects of remittances remain separate. We develop a framework that links the motivation for remittances with their effect on economic activity. Because remittances take place under asymmetric information and economic uncertainty, there exists a significant moral hazard problem. The implication is that remittances have a negative effect on economic growth. We test this prediction using panel methods on a large sample of countries. The results indicate that remittances do have a negative effect on economic growth, which indicates that the moral hazard problem in remittances is severe.
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