Are Immigrant Remittance Flows a Source of Capital for Development?” IMF Staff Papers 52(1

There is a general presumption in the literature and among policymakers that immigrant remittances play the same role in economic development as foreign direct investment and other capital flows, but this is an open question. We develop a model of remittances based on the economics of the family that implies that remittances are not profit-driven, but are compensatory transfers, and should have a negative correlation with GDP growth. This is in contrast to the positive corre-lation of profit-driven capital flows with GDP growth. We test this implication of our model using a new panel data set on remittances and find a robust negative correlation between remittances and GDP growth. This indicates that remittances may not be intended to serve as a source of capital for economic development. [JEL D64, D82, F22] The role of immigrant remittances in economic development continues to bean important issue for researchers and policymakers. Both groups are attracted to immigrant remittances because they represent a substantial flow of financial resources, predominantly from developed economies to developing economies. For example, Buch and others (2002) estimate that total remittances (plus compensation of employees) averaged $81 billion per year during th