Literature Review

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Introduction

In recent years, immigrant remittances became a major source of external financial development, and most countries. Remittances exceeded the volume of foreign aid and investments (World Bank, 2005; Deneulin, 2005; Page & Plaza, 2006; Conway & Cohen, 1998; Brown 2006; Orozco, 2007; Jennings & Clarke, 2005; Lo, 2008; Lucas & Stark, 1985; De Haas, 2005; Athukirala, 1991; Djajic, 1986; Guiliano & Ruiz-Arranz, 2009). The increased flow of remittances outpaced the private capital flow and official assistance for development. For instance, remittances in Mexico were larger than foreign direct investments (Page & Plaza, 2006). For many countries, flows of remittances were more than the earnings from exported products. For example, in Sri Lanka, remittances were more than the profit from tea exports, and in Morocco, remittances were more than the profit from tourism (Page & Plaza, 2006; Giuliano & Ruiz-Arranz, 2009). Furthermore, in terms of contribution to national income, small countries like Haiti, Tonga, Lebanon, and Jordan were the top recipients (Page & Plaza, 2006; World Bank, 2005). The impact of remittances on local economic development was a multilayered process in pursuing the economic and social development of less developed countries. Different strategies were developed in order to address less developed countries economic and social problems (Jones, 1998; Peet and Watts, 1993; Ihonvbere, 1992). During the 1970s, the economic development literature focused on inequalities, and economic solutions on how to solve inequalities within societies. However, most of these theories were unable to prevent the economic crisis and restructuring of the 1980s and early 1990s (Richards, 1992; Sherman, 1992). During that time, migrants remittances were analysed and found to be an important factor for the local development of less developed countries. Jones (1998) argued that remittances sent by migrants to their family members in local communities were directly creating new jobs; therefore, citizens were not impelled to leave their communities and countries to find employment oversees. In this context, one can argue that job creation in local communities encouraged citizens to remain in their local communities rather than leave and seek employment in other countries. In this sense, remittances can be viewed as a tool for development Remittance transactions occurred for decades; however, these transactions were insignificant to policymakers. Presently, the flow of remittances is attracting the attention of international policymakers who believe that remittances can bring about development in various economies. The global flow of remittances represented a sizeable share of the annual GDP and foreign exchange reserves during the 1990s as opposed to overseas development assistance (Brown, 2006). This global flow of remittances was a more stable, non-debt creating factor, and a safety-net vehicle administered by families and local communities rather than by national governments (Datta et al, 2007; Chimhowo, Piesse & Pinder, 2005; Wimaladharma, Pearce & Stanton, 2004).

Agglomeration vs. Spatial Models

Agglomeration externalities and third-country effects/spatial interdependence are two distinct, but inter-related, factors that researchers have recently targeted when examining MNE location decisions. Agglomeration economies are the positive externalities resulting from spatial concentration of existing activity that explains the benefits ...