ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Do Remittances Promote Labor Productivity in Mexico? A DOLS and FMOLS Analysis, 1970-2017

Miguel D. Ramirez

Correspondence: Miguel D. Ramirez,

Trinity College, Hartford, CT, USA.

pdf (335.78 Kb) | doi:


This paper investigates the impact of remittance flows on economic output and labor productivity for Mexico during the 1970-2017 period. The findings suggest that remittance flows to Mexico have a positive and significant effect on economic output and labor productivity. The paper is organized as follows: First, it gives an overview of remittance flows in absolute terms, relative to GDP, in comparison to FDI inflows, and in terms of their regional destination. Next, the paper reviews the growing literature that assesses the impact of remittances on investment spending and economic growth. Third, to motivate the discussion of the empirical results, the paper presents a simple endogenous growth model that explicitly incorporates the potential impact of remittance flows on economic output and labor productivity. Fourth, it presents a modified empirical counterpart to the simple model that tests for unit roots and performs both a Johansen cointegration test and a Gregory and Hansen cointegration test with an endogenously determined regime shift. FMOLS and DOLS long-run estimates for the period in question suggest that remittance flows to Mexico have a positive and significant effect, albeit small, on both the levels of economic output and labor productivity. The concluding section summarizes the major results and discusses potential avenues for future research on this important topic.


  ADF unit root test, DOLS, FDI inflows, FMOLS, Gregory-Hansen cointegration single-break test, Gross fixed capital formation, Johansen Cointegration test, KPSS no unit root test, labor productivity, and remittance flows.


Acosta, Pablo A. et al. 2008. “Remittances and the Dutch Disease.” Federal Reserve Bank of Atlanta, Working Paper2007-8a (August), 1-22.Aitymbetov, S. 2006. “Emigrant remittances: Impact on economic development of Kyrgyzstan.” ICEG Working Paper (June), 1-20.Bahamani-Oskoee, M. 1996. “Decline of the Iranian Rial during the post-revolutionary period: A Productivity Approach,” Journal of Developing Areas, 30, 479-92.Barajas, Adolfo et al.  2009. “Do Workers Remittances Promote Economic Growth?” IMF Working Paper, No. 153 (July), 1-22.Barro, R.J. 1990. “Government Spending in a Simple Model of Endogenous Growth,” Journal of Political Economy, 98, 5, 103-125.Bloomstrom, M. and E. Wolff. Multinational Corporations and Productivity Convergence in Mexico. 1994.  In Convergence of Productivity: Cross-National Studies Historical Evidence, edited by W. Baumol, R. Nelson, and E. Wolff. Oxford: Oxford University Press.Canas, J., Coronado, R., & Orrenius, P. 2007. Explaining the increase in remittances to Mexico. The Southwest Economy, Federal Reserve Bank of Dallas, July/August.Chami, R., Fullenkamp, C., & Jahjah, S. 2005. “Are immigrant remittance flows a source of capital for development?” IMF Staff Papers, 53 (1), 57-70.Chami, R., Barajas, A., Montiel, P., & Hakura, D. 2010. “Workers' remittances and the equilibrium real exchange rate: Theory and evidence,” IMF Working Papers, 10 (287), 1. Charemza, W.W. and D.F. Deadman. 1997. New Directions in Econometric Practice: General to Specific Modelling, Cointegration and Vector Autoregression. Cheltenham: Edward Elgar Publishers.Cypher, J.M. 2014. The Process of Economic Development, 4th ed. New York: Routledge.De Mello, Jr. Luiz R. 1997. “Foreign Direct Investment in Developing Countries and Growth: A Selective Survey.” Journal of Development Studies, 34, 1 (October), 1-34.De Vita, G. and K. Lawler. 2004. “Foreign Direct Investment and its Determinants: A Look to the Past, A View to the Future." In Foreign Investment in Developing Nations, edited by H.S. Kehal. New York: Palgrave Macmillan, Ltd.Dickey, D., and W. Fuller, 1979. “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root.” Econometrica, 49 (June), 1057-1072.Doldado, J., T. Jenkinson, and S. Sosvilla-Rivero, 1990. “Cointegration and Unit Roots,” Journal of Economic Surveys, 4: 249-73.ECLAC. 2006-2021. Foreign Investment in Latin America and the Caribbean, Various Reports.Ellerman, D. 2003. “Policy Research on Migration and Development,” World Bank Policy Research Working Paper, No. 3117. Washington, D.C.: The World Bank.Engle, R.F. and C.W.J. Granger. 1987. “Cointegration and Error Correction: Representation, Estimation, and Testing.” Econometrica 55 (March), 251-76.Fayissa, B. and C. Nsiah, 2012. “Financial Development and Remittances in Africa and the Americas: A Panel-Unit Root Tests and Panel Cointegration Analysis.” Department of Economics and Finance Working Paper Series, Middle Tennessee State University, March: 1-22.Guiliano, P. and Ruiz-Arranz, M. 2006. “Remittances, Financial Development, and Growth.” IMF Working Papers, No. 05-234.Gregory, A.W. and B.E. Hansen. 1996. “Tests for Cointegration in Models with Regime and Trend shifts.” Journal of Econometrics 70, 1, 99-126.Hakkio, C. S., and M. Rush. 1991. “Cointegration: How Short is the Long- run? Journal of International Money and Finance, 10, 571-81.Johansen, Soren and K. Juselius. 1990. “Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money.” Oxford Bulletin of Economics and Statistics, 52 (May), 169-210.Kao, C. and Chiang, M.H. 2000. “On the Estimation and Inference of a Cointegrated Regression in Panel Data.” In: Baltagi, B., Ed., Nonstationary Panels, Panel Cointegration, and Dynamic Panels, JAI Press, Amsterdam, 161-178Kumar, R. R. 2013. “Remittances and economic growth: A study of Guyana.” Economic Systems, 37(3), 462–472., D., Phillips, P.C.B., Schmidt, P., and Shin, Y., 1992. “Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root,” Journal of Econometrics, 54, 159-78.Lee, J. and M.C. Strazicich. 2003. “Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks,” The Review of Economics and Statistics, 85 (4), 1082-1089.Meyer, D. and A. Shera, 2017. “The Impact of Remittances on Economic Growth: An Econometric Model,” EconomiA, 18, 2, 147-155.Mohapatra, D., D. Ratha, and A. Silwal. 2011. “Outlook for Remittance Flows 2011-13,” Migration and Development Brief, No. 16. Washington, D.C.: The World Bank, May.Mundaca, G. (2005). Can remittances enhance economic growth? the role of financial market development SSRN. Retrieved from Financiera, S.A. La Economia Mexicana en Cifras. Mexico, D.F.: Nafinsa, various issues.Orozco, M. 2004. “Mexican Hometown Associations and Development Opportunities,” Journal of International Affairs, 57, 2, 1-20.Perron, P. 1989. “The Great Crash, the Oil Price Shock and the Unit Root Hypothesis,” Econometrica, 57, 1361-1401.Ramanarayanan, A. 2009. “Ties that Bind: Bilateral Trade’s Role in Synchronizing Business Cycles” Economic Letter, 4, 1, January, pp. 1-8.  Federal Reserve Bank of Dallas.Ram, R., and Zhang, K. H. 2002. “Foreign Direct Investment and Economic Growth: Evidence from Cross-Country Data for the 1990s,” Economic Development and Cultural Change, 51, 205-215.Ratha, D. 2003. “Workers’ Remittances: An important and Stable Source of External Development  Finance.” Global Development Finance. Washington, D.C.: The World Bank.Saikkonen, P. 1991. “Asymptotically Efficient Estimation of Cointegration Regressions. Econometric Theory,” 7, 1-21., M. and Gow, J. 2015. “The Relationship between Economic Growth and Remittances in the Presence of Cross-Sectional Dependence,” The Journal of Developing Areas, 49, 207-221., H. and M.D. Ramirez. 2009. “Remittances and Growth in Latin America: A Panel Unit      Root and Panel Cointegration Analysis,” Estudios Economicos de Desarrollo Internacional,  9 (1), 5-32.Solimano, A. 2003. “Remittances by Emigrants: Issues and Evidence.” Macroeconomias del Desarrollo, 26, Economic Development Division. Santiago: Chile, October.The World Bank. 2010-2022. Migration and Development Brief, Various Issues. Washington, D.C.: Migration and Remittances Unit.United Nations. 2021-2022. World Investment Reports 2021-2022: Trends and Determinants. Switzerland: United Nations.Woodruff, C., 2006. Mexican microenterprise investment and employment: Role of remittances. INTAL-ITD Working Paper 26.