The Impact of Remittances on Economic Growth in Developing Countries: Empirical Evidence from Turkey

Abstract

Remittances are defined as foreign exchange that workers who live and work abroad send to their home countries to support their families or to make investments. Remittances have a vital importance for developing countries and represent important injections to the sending countries of migrant workers. Turkey is a developing country and has around 6.5 million Turkeyoriginated people living in the world. Most of them are living in developed Western-Europe countries. Turkish economy has an import-oriented growth and remittances are one of the most important items for foreign exchange inflows in case of a decrease in export or tourism revenues. In this study, the nexus between remittances and economic growth for Turkey is investigated for the period 1994-2018 by using annual data. In this context, the Johansen Cointegration Analysis is firstly used to determine whether there is a long-term relationship between the two variables, followed by the Granger Causality Analysis which is used for the investigate the causality relationship between the variables. It is found that there is a unidirectional relationship from economic growth to remittances in Turkey. Remittance flows into Turkey do not cause economic growth. That means more important sources of GDP than remittances may affect economic growth in Turkey. At this point it can be concluded that other foreign exchange sources such as FDI, exportation or sectors like tourism and transportation could be the main driving force of Turkey’s GDP. Besides, migration barriers, the duration of migration, migration type are important determinants of remittances. Because Turkey gets most of it’s remittances from Western European Union countries such as Germany, France, Netherlands and Belgium, the impact of remittances may cause Turkey’s economic growth with higher labor mobility in European Union. Also economic growth may effect remittances by the conversion of these remittances into important investments that creates employment.