Macroeconomic Effects of Remittances and Temporary Migration

Timo Baas and Silvia Maja Melzer

presented at: Macroeconomic Effects of Remittances and Temporary Migration (11 Apr 2011)

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The free movement of persons is a fundamental right guaranteed to European Union (EU) citizens which is about to change not only the size of migration flows but also the behavior of migrants regarding the duration of stay. In our empirical analysis we show that migrants who intend to live only temporary in Germany are more likely to remit a higher amount of money. As we have seen in the UK, strong remittances flows provoke fears among natives of a loss in domestic purchasing power. Using a general equilibrium model with altruistic households and imperfect labor markets, we show that Germany will benefit from both, migration and remittances. Fears about an increase in temporary migration and stronger remittances harming the domestic economy seem to be unjustified even as we observe an opposite Dutch-disease-like redistribution of production from services to the manufacturing sectors.


Countries covered: European Union

Research Areas: Macroeconomic Analysis and Policy, Labour, Migration and Income Distribution