| Abstract |
This paper tries to answer two questions. First, to what extent are remittances (as private transfers) differentiable from grants (as public transfers) in their effects on capital formation and growth. Second, how might the motivations to remit inform the nature of the relationship between remittances and growth? These questions are addressed using a sample of four countries whose predominant source of remittances is from guest workers in the oil-rich Arab States. The results, derived from estimated growth, investment and consumption equations, using both panel and time series methods, suggest that remittances and grants, in fact, do behave differently. Remittances have a positive relationship with growth for all but one country (remittances are negatively correlated with growth for Bangladesh); while grants have a negative relationship with growth for all but one country (grants are positively related with growth for Pakistan). The implication is that, although remittances and grants are both external transfers, they have quite different effects on capital formation and growth. Likely additional implications of the investigation results is that the altruistic motivation to remit is the most likely cause of direct growth impacts of remittances in Pakistan, while the self-interest motivation is for a more likely explanation of the indirect growth impact of remittances (via investment) in Egypt. In the case of Bangladesh, the counter-cyclical behavior of remittance flows suggest the risk-reduction motive of enlightened self-interest. Finally, the motivation to remit for Syria seems to be a combination of both migrants' altruistic behavior and self-interest attitudes. |