Remittances and the sources of growth

This article studies the effects of remittances on economic growth and the sources of growth:capital accumulation and Total Factor Productivity (TFP) growth. This approach is different from previous studies, in that, it focuses on the transmission mechanism instead of the impact of remittances on economic growth. We find that remittances have conflicting effects on the two sources of growth: capital accumulation and productivity growth. Remittances have a significantly positive impact on capital accumulation while the impact on TFP growth is insignificant. These findings suggest that while remittances enhance investment and contribute to physical capital accumulation, the lack of efficiency enhancing effect or possible adverse impact on TFP growth would make the net effect on economic growth ambiguous.