Do Remittances Not Promote Growth? A bias-adjusted three-step mixture-of-regression strategy

Outline
  • Expected start date:
    2014•06•01
    Expected end date:
    2016•03•01
    Institute:
    UNU-MERIT
    Project Status:
    Closed
    Project Type:
    Research
    Project Manager :
    Maty Konte

    Remittance inflows have significantly increased in many developing countries during the last years, surpassing the International Official Aid inflows, and it is currently ranked as the second largest external capitals after the Foreign Direct Investment. Data from the World Bank report an amount of approximately US $ 325 billion of remittances for the year 2010. In many developing countries, worker’s remittances relative to the Gross Domestic Product are estimated to more than 10% for instance in Honduras or Senegal, and exceed 20% in Lesotho, Moldova or Nepal, in 2010. An influential literature has shown that remittances lead desirable development features by alleviating poverty and inequality, and smoothing consumption of receivers. Yet there is no consensus on whether remittances are beneficial or detrimental for economic growth, and the debate on the impact of remittance inflows on growth remains inconclusive. The paper seeks to understand why it has been so difficult to find a positive impact of remittances on growth despite the growing amount of remittances in many developing countries and the different studies that have emphasized the positive effect of remittances on poverty and inequality.It tests whether the impact of remittances on growth rate depends on the growth regime to which an economy belongs where the identification of the existence of the different growth regimes is based on the similarity of countries in terms of their growth trajectory over time given all the available information in the data.