Do remittance inflows promote manufacturing growth?

Abstract

Studies show that manufacturing growth is fundamental to sustained economic growth and development. However, recent Dutch disease perspective studies suggest that remittance inflows have the potential to impede manufacturing growth of the recipient economies. This paper contributes to the literature by investigating the effect of remittance inflows on manufacturing growth directly. The main claim of the paper is that the Dutch disease perspective identifies only one of the several channels through which remittance inflows impacts on manufacturing growth and hence unlikely to reflect the ultimate impact of remittances on manufacturing growth. This study uses the 3-digit level manufacturing data on a sample of 40 remittance-dependent economies over the period from 1991 to 2004. The empirical results indicate positive and robust effect of remittance inflows on manufacturing growth. This finding implies that one of the mechanisms through which remittance inflows could lift standards of living in poor countries is via the impact on manufacturing growth.