Workers’ Remittances in Yemen: Macroeconomic Determinants and Impact on Economic Growth

Abstract

This study examines the determinants of workers' remittances and their impact on economic growth in Yemen. Autoregressive Distributed Lag (ARDL) bounds test to co-integration and error correction model (ECM) were applied to data covering the period from 1990 to 2014. According to the model of remittances determinants, workers' remittances in Yemen respond to the macroeconomic conditions of both the home and host countries. In the long run, migrant stock and income levels at the host countries positively and strongly influence the remittance level, with a feeble impact on domestic inflation rates. The effect of the home country's income seems positive but insignificant in explaining the behaviour of remittances level. The economic growth model suggests that, in the long run, the impact of workers' remittances appears to be positive and moderate, with positive and stronger influences observed for financial development and official development assistance. Accordingly, it is recommended that a lesser weight should be given to remittances in the strategic planning process, considering the increasing potential of the conditions in the neighbouring host countries to be changed. In addition, using remittances as a means of economic growth can be enhanced by encouraging migrants to direct their savings towards productive investment activities and via formal channels.

Keywords

• Remittances
• Economic Growth
• Time Series Analysis