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Keywords:

  • Remittances;
  • Labor supply;
  • Panel data;
  • Developing countries
  • J21;
  • F24;
  • O1

Do remittances reduce labor supply in recipient economies? This paper addresses this question with aggregate level data for a panel of sixty-six developing countries from the Middle East and Africa, Asia and the Pacific, and Latin America and the Caribbean over the period 1985 to 2005. The results exhibit a positive and significant relationship between remittances and aggregate labor supply. The effect is clearly driven by men in each of the three regions. Three potential explanations are put forward to explain these empirical findings: (1) non-migrating household members are likely to increase their labor supply in order to defray migration-related expenses; (2) neighboring households increase their labor supply to help family members migrate after they become more aware of the benefits of remittances; and (3) remittances overcome credit constraints, thus generating employment.