Working Paper Series: Special Edition of 2016 to 2018 Interns

The Pure Self Interest theory posits that migrants send money, not out of altruistic concerns, but mainly for their own personal benefit such as exploiting investments opportunities. Borensztein et al. (2006) posited that there is no inverse relationship between volumes of remittances and the economic performance of the domestic country. They showed that a positive correlation lies between volumes of remittances, FDI and economic performance in countries where bad economic conditions prevail. The self-interest theory has identified other drivers behind remittances. To accumulate wealth in the home country as stated by Dustmann and Kirchkamp (2002), to defray migration costs or repay education and other expenses, and according to Stark (1995), to pay for social status in the home country compensate services provided by the household members such as taking care of the migrant’s assets or relatives while the migrant is abroad. Lucas and Stark (1985) claimed that migrants’ self-interest is the principal motive for remittances. Migrants have an intent to return home, promoting remittance for investment in fixed capital such as land, livestock, house, and in public assets to enhance prestige or political influence. This phenomenon is not countercyclical. This means that remittances are used for capital investment, to form small businesses and garner fixed assets such as homes. Therefore, when there is deterioration in economic performance of the domestic country, migrants are most likely to remit less since the situation will have a negative impact on both investible and inheritable assets. Hence, there is likely to be an increase in the volumes of remittances if the home economy is undergoing a favourable spell. Guilano and Arranz (2009) study found that remittances improve credit constraints on the poor, can be used as a substitute for the lack of financial development and improve the allocation of capital, thus accelerating economic growth. They assessed the cyclical properties of remittance flows and concluded that huge cyclical behaviours are apparent and tend to be more pro-cyclical in countries where less developed financial system exist. Grigorian and Melkonyan (2008) stated that remittances are also being driven by a combination of these two theories that vary in strength depending on societal and economic factors underlying the country/culture, as well as individual remitters/families in question. They also argued that while

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