The impacts of rural–urban migrants’ remittances on the urban economy

Much literature finds that migrants’ remittances have positive effects on the labor-outsourcing regions; however, it should be noted that the massive funds outflow from the labor host regions poses an impact on these regions as well. Moreover, the existing literature sheds little light on the theoretical study of remittances within one economy. This article theoretically analyzes the economic impact of migrants’ remittances on the labor host regions, the urban regions, and establishes a three-sector general equilibrium model to investigate the impacts of an increase in remittances on wage, employment and welfare level in the urban regions from the short- and long-term perspectives. We find that an increase in remittances will reduce the output of the informal sector and decrease urban residents’ welfare in the short term, while it will increase the output of the informal sector and augment urban residents’ welfare in the long term.