Essays on structural transformations: remittances, fertility and informality

Abstract

[eng] The thesis is composed of an introduction, conclusions, and three chapters that investigate three characteristics of developing countries: structural change, fertility, and informality. In Chapter 2, co-authored with Xavier Raurich, we explore how remittances affect the sectoral composition of developing countries. Empirical evidence shows that employment in the service sector has risen while employment in the agriculture sector has decreased in the last 24 years. We argue that remittances affect the sectoral composition through an income effect, increasing households’ income and consumption demand, and shifting employment towards the service sector when the service sector has a more significant income elasticity. To this end, we calibrate a two-sector growth model with non-homothetic preferences and perform two counterfactual exercises to address the importance of remittances. The result of the first exercise suggests that, on average, a receipt remittances economy allocates almost 5.17% of total employment into the services sector due to remittances. In the second exercise, we study how important are remittance to explain the change in the sectoral employment composition for El Salvador, Guatemala, and Honduras, characterized by a high level of money flow. We found that remittance contributes to explaining between 5% and 27% of the total variation of the employment share. In Chapter 3, I develop a fertility choice model to analyze how migration affects fertility in developing countries. In this model, migration decreases the fertility rate through two mechanisms. When migration occurs, the household’s income rises due to remittances sent home. This remittance implies a rise in education expenditure for children. At the same time, the second mechanism is a general equilibrium effect due to migration. When people migrate, the local labor supply decrease while the local salary increases. The individuals who stay have a higher salary, but less time to take care of the children. This raises the opportunity cost to have children, which induces a reduction in fertility. This increase in the relative cost of children implies a decline in fertility. I calibrate the model to replicate the fertility pattern for a group of developing countries. Then I perform two counterfactual exercises to assess the importance of migration. The results indicate that the migration process is a complementary explanation for the demographic transition in developing countries. In Chapter 4, co-authored with E.Cruz, we study informality from the demand perspective. Taking into consideration the case of the Mexican economy, we explore how quality explains the increase in formal employment. We argue that the increasing consumer quality demand for goods and services is a driver for the change in the sectoral composition. To this end, we propose a dual growth model consisting of two broad sectors, goods, and services, which are composited by a formal and an informal industry. We assume that the formal and informal industries produce goods and services, and just the formal firms produce goods or services that embody quality. Quality increases exogenous along the development process. The increasing demand for formal goods and services induces the reallocation of labor from informal to formal firms. Our numerical findings suggest that quality is an important mechanism that contributes to explaining the decrease in the size of the informal sector and the change in the sectoral composition of the Mexican economy.