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1. Introduction
Remittances is a subject that has attracted significant attention in recent times. Policy makers, academicians and the general public pay close attention to the evolution of this capital flow. This fact is not surprising, since remittances represent one of the primary sources of foreign reserves for many economies; and in some cases the main source of income for families. According to the World Bank, in 2007 developing countries received an estimated 240 billion dollars from nationals working on foreign soil. This amount represents about 75 percent of the world's remittances ([22] World Bank Publications, 2008). Within the world regions that depend significantly on remittances to sustain economic activity, Latin America stands out as the one with the highest amounts collected. [1] Acosta et al. (2008) indicate that Latin American countries received 50 billion dollars in 2005; Mexico alone accounted for half of this amount. Although this percentage is substantial, remittances in Mexico do not represent a significant portion of the gross domestic product (GDP), at about 2.8 percent. This share is much larger for countries such as Honduras, El Salvador, Haiti, and Jamaica, where remittances account for anywhere from 16 percent to 25 percent.
The impact of remittances on the receiving countries has been extensively addressed in the literature. [17] Rivera-Batiz (1986), for example, evaluates how remittances increase investment and consumption in the migrants' home nation. In [6] Durand et al. (1996), the authors argue that remittances function as an engine of economic growth. Similarly, [9] Glytsos (2005) examines the multiplier effects of remittances on the economy. The author finds that in some countries, Egypt for instance, they are significant; the impact of remittances goes beyond the initial effect on consumption. Along this avenue of analysis, [2] Adelman et al. (1988) develop social accounting matrices to identify the indirect and direct effects of remittances on household income. They suggest that both effects are important in determining the economic conditions of a community. [15] Rapoport and Docquier (2005), on the other hand, argue that remittances improve investment in physical and human capital and hence promote development. More recently, [18] Salas-Alfaro and Pérez-Morales (2006) examine how remittances influence economic growth and income distribution in Mexico. The authors establish that families who receive remittances are...