The Economic Impact of Remittances and Foreign Trade on Migration. Granger-Causality approach

Abstract

This paper analyzed the bidirectional relationship between several mobility factors such as migration, remittances and foreign trade.

The issue that certain mobility factors might be substitutes was first raised by economists Heckscher and Ohlin and was later picked up several times by other authors in the literature. We assumed that such a debate should be revived and addressed again, especially having in mind growing importance of mobility factors in contemporaneous Economies.

Using modern and sophisticated econometric technique such as Granger-causality analysis we studied the case of Spain taking yearly data from 1975 till 2013. The autoregression vector (VAR) model was used as well as Granger-causality test was employed to provide evidence that such a reciprocal type of relationships between the economic factors subject of our study in reality exist.

The results of Granger-causality test have led us to the conclusion that export causes migration and also migration causes export. Results also showed that net migration and international trade are treated as substitutes. Further, we found that not only migration causes higher remittances what is consistent with an intuitive feel, but also past remittances draw further migration.

In terms of the Heckscher-Ohlin model, the enormous growth of migration flows in the contemporary time is explained partly because the increase in remittances through the downtrend in their costs which has also encouraged to international trade.

DOI: http://dx.doi.org/10.5755/j01.ee.26.4.12464