This dissertation is comprised of two essays. The first essay analyzes the aggregate
income shocks absorbing and welfare improving roles of remittances in emerging
economies. I develop a model to derive testable implications for aggregate remittance
behavior. Using a panel data set of 102 developing countries from 1975 to 2013 and
the generalized method of moments estimator, I find that remittances respond to fluctuations
in GDP and exchange rates in a manner consistent with income smoothing
implications of the model. Using a variance-decomposition framework, I find that
remittances, on average, absorb about 3.5 percent of fluctuations in GDP in all 102
countries, but about 6.1 percent of such fluctuations in Africa countries. To assess
the welfare gains from remittances, I use a utility-based framework that allows for
level-, growth-, and volatility-effects of remittances on income. Using country-level
data, I find that the average welfare gains to a representative agent are equivalent to
a 1.9 percent increase in consumption. About 15 percent of these gains arise from
less volatile income and the rest arises from higher income and growth. Using household
data from five countries, I find that the gains for poor households are about
eleven-fold larger than the gains for rich households.
In the second essay, I examine the effects of immigration on the wages of
U.S. native workers at the national level. Following a general equilibrium approach
and exploiting the variation in labor supply shifts across industry, education, and
experience specific skill-groups of workers, I find that immigrant workers are indeed
imperfect substitutes for native workers. Using my estimates of the elasticity of
substitution between workers of different skill groups, I find that immigration had
much smaller negative effects on the wages of unskilled native workers than what is
reported in Borjas (2003) and Ottaviano and Peri (2012). Immigration (1990-2014)
reduced the wages of native workers with no high school degree by about 0.3 percent
while it increased the wages of average native workers by about 0.6 percent. In the
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paper, I document the importance of consideration of industry (occupation) specific
skill groups of workers in addition to conventionally used education and experience
groups while estimating the substitutability between immigrant and native workers
and, thus, evaluating the effects of immigration on wages of native workers.