Sectoral income effects of family remittances. The case of El Salvador

For over four decades remittances have accompanied migration. The migration of Salvadorans occurring in the 1980's has been no exception. The importance of remittances became apparent during the second half of the 1980's, but were only acknowledge in the last five years. This dissertation's objective was to examine whether the impact of remittances was the stimulus of imports alone or that the expenditure multiplier effects of remittances led the growth of aggregated domestic output---which has been verified. The increase of aggregated domestic output tends to diminish as remittances grow. The positive effects of remittances on aggregate output could be inferred from the theoretical approach of the Hecksher-Olhin framework, but the quantity and how the output would behave was still unknown. Furthermore, there was a question which would provide for more interesting intellectual understanding when answered: how these remittances affected the output and imports at the level of economic sectors? In response to this question, the Input Output analysis was used as the quantitative method appropriately allowing for calculations and simulations. A macroeconomic model was tailored to simulate the introduction of the variations in the amount of remittances which come into the country and to discover the reaction of the output of different sectors. The 1990 input output table created by the Salvadoran Central Bank was a crucial tool for the exercise. In the beginning, the data for the remittance variable was insufficient for the task thus leading to its collection by means of a nationwide field survey in El Salvador, and also to the creation of a data bank of the patterns of expenditure by remittances recipients. The survey results were used in the construction of a variable which represented remittances in the balance equations of the input output model. The results confirmed that remittances, although exerting pressures to raise imports, also increase domestic output, consumption, government revenue, savings and employment at the aggregated level. At the sectoral level, the output of the Communal, Social and Personal Services, Construction, and House Rental sectors revealed the greatest sensitivity to the remittances influx.