Migrant Labor and Remittances: Macroeconomic Consequences and Policy Responses

Many developing countries experiencing poor domestic economic performance view migrant labor as an alternative. We employ a macrodynamic model of two small open economies—a host country and a labor-exporting developing country—to address this issue. We analyze how both economies are impacted by alte...

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Bibliographic Details
Published in:Journal of human capital 2021-03, Vol.15 (1), p.128-173
Main Authors: Lim, Sokchea, Morshed, A. K. M. Mahbub, Turnovsky, Stephen J.
Format: Article
Language:English
Subjects:
Developing countries
Economic performance
Fiscal policy
LDCs
Macroeconomics
Migrant workers
Migration
Policy making
Remittances
Taxation
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Summary:Many developing countries experiencing poor domestic economic performance view migrant labor as an alternative. We employ a macrodynamic model of two small open economies—a host country and a labor-exporting developing country—to address this issue. We analyze how both economies are impacted by alternative tax policies, structural changes occurring in the two economies, and plausible fiscal policy responses. The most important feature of the model is that remittances are endogenized by being linked to the household members’ decisions to migrate. Extensive numerical simulations provide important implications for both fiscal and migration policies and address important questions regarding the current efforts put forward by governments of several developing countries to encourage migrant labor.
ISSN:1932-8575
1932-8664
DOI:10.1086/713403