Wages in the Manufacturing Sector and Remittances Outflows from High-Income Countries

Abstract

This paper has investigated the effect of wages in the manufacturing sector on remittances outflows from High-Income Countries (HICs). The main theoretical hypothesis of the analysis is that changes in the wages in the manufacturing sector in HICs would affect wages in other sectors of the economy, and hence the amounts of remittances sent by migrants residing in these countries. The study has been performed on a set of 47 HICs, of which 22 old-industrialized countries, and uses both the fixed effects approach as well as the Least Squares Dummy Variables Corrected (LSDVC) estimator. Results have suggested for the full sample, that an increase in the real wages in the manufacturing sector is associated with higher remittances outflows. Interestingly, the magnitude of this positive effect is higher for remittances sent from old-industrialized countries than for remittances sent from other HICs. Moreover, the analysis has revealed that the magnitude of the positive remittances outflows effect of wages in the manufacturing sector increases as this sector expands, that is, as manufacturing export values increase. An important implication of the analysis is that by lowering wages both in the manufacturing sector and in other sectors of the economy, the shrinking of the manufacturing sector in HICs is likely to reduce the income of migrants residing in these countries and consequently lead to lower remittances outflows. The decline in the remittances outflows would severely affect the ability of receiving countries (i.e., developing countries) to tap on this important source of financial flows to finance their development.