The impact of migrant remittances on economic development: empirical evidence from the developing world

Given the growing interest in the role of remittance inflows in economic development in developing countries, this study aims to explore the impact of migrant remittances on human capital, as measured by per capita health expenditures and gross secondary school enrollment, as well as on economic growth measured through real GDP per capita. The study utilizes pooled cross-country annual panel balanced data to investigate the role of remittances from 1995 to 2020 in 61 developing nations. The fixed-effects estimator is preferred over the random-effects estimator based on the Hausman test. Additionally, the two-step generalized method of moments is implemented for a robustness check. The empirical results reveal that remittance inflows have a significant impact on education and health despite positive impact of migrant remittances on economic growth, thereby confirming the positive contribution of migrant remittances to the economic development of developing economies. Migrant remittances have the greatest impact on health in upper-middle-income countries, followed by that in low-income and middle-income countries in the sub-sample analysis. The impact of remittances on education is the highest in low-income countries, followed by that in middle-income and upper-middle-income countries. These findings from a policy perspective suggest the allocation of remittance inflows into sectors that bolster economic development and improve social welfare. The study suggests developing economies to formulate effective policies for diverting remittances to productive sectors.