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Federal Reserve Bank of Dallas
Working Papers
Do remittances boost economic development? Evidence from Mexican states
Pia M. Orrenius
Madeline Zavodny
Jesús Cañas
Roberto Coronado

Remittances have been promoted as a development tool because they can raise incomes and reduce poverty rates in developing countries. Remittances may also promote development by providing funds that recipients can spend on education or health care or invest in entrepreneurial activities. From a macroeconomic perspective, remittances can boost aggregate demand and thereby GDP as well as spur economic growth. However, remittances may also have adverse macroeconomic impacts by increasing income inequality and reducing labor supply among recipients. We use state-level data from Mexico during 2003–07 to examine the aggregate effect of remittances on employment, wages, unemployment rates, the wage distribution, and school enrollment rates. While employment, wages and school enrollment have risen over time in Mexican states, these trends are not accounted for by increasing remittances. However, two-stage least squares specifications among central Mexican states suggest that remittances shift the wage distribution to the right, reducing the fraction of workers earning the minimum wage or less.

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Pia M. Orrenius & Madeline Zavodny & Jesús Cañas & Roberto Coronado, Do remittances boost economic development? Evidence from Mexican states, Federal Reserve Bank of Dallas, Working Papers 1007, 2010.
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Note: Published as: Orrenius, Pia M., Madeline Zavodny, Jesus Cañas and Roberto Coronado (2010), "Do Remittances Boost Economic Development? Evidence From Mexican States," Law and Business Review of the Americas 16 (4): 803-822.
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Keywords: Emigrant remittances - Latin America; Economic development - Latin America; Economic conditions - Mexico; Labor market; Income distribution; Emigration and immigration
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