Remittances for economic development: The investment perspective

Based on the economic theory of the family, this paper constructs a model of remittances where the migrant, besides sending money to his family, also invests in his home country. The investment is looked after by a family member in return for some monetary compensation. The model focuses on two different cases: state-contingent transfers (transfers are tied to investment outcomes) and fixed transfers (transfers are mainly of altruistic motive). As the migrant derives utilities from consumption, his consumption-investment decision is driven by preferences and future investment prospects. The transfers are to increase with both business encouraging and income compensatory effects.

► This paper examines investment related motive versus altruistic motive of remittances. ► It models state-contingent transfers and fixed transfers. ► Remittances increase with business encouraging and income compensatory effects. ► Financial development helps channel remittances towards investment.