In this article we re-examine the relationship between remittances and economic growth placing special attention on the nonlinearity of this relationship. Previous studies have ignored the non-linearity of the relationship between remittances and economic growth or have used a quadratic term to capture nonlinearity. We show that the relationship between remittances and growth is neither linear nor quadratic and propose the use of a semiparametric model to avoid the risk of misspecification bias from imposing an arbitrary functional form. We find evidence of a positive relationship between remittances and growth in parametric estimations; however, such a relationship disappears when nonlinearity is taken into account using non-parametric techniques.Migration, remittances, economic growth,
Using the first comprehensive estimates of ad valorem tariff equivalent bilateral trade costs spanning the time period 2002–10, we examine whether the aid‐for‐trade (AFT) inflows reduce bilateral trade costs facing aid recipients. If so, we ask whether the trade costs reduction effects of AFT from bilateral and multilateral sources are complementary. By showing the extent to which the observed trade cost reduction effects of AFT from bilateral (multilateral) sources correlate with the magnitudes of AFT disbursements from multilateral (bilateral) sources, we present plausible explanation for the cross‐country variations in the extent to which AFT promotes trade flows. Our findings have, thus, important policy implications for shaping future discourses on the coordination of disbursements for enhancing the effectiveness of AFT.
The relationship between foreign aid and economic growth has been the subject of much controversy. A recent theme suggesting that aid promotes growth, but only in a good policy environment has ratcheted up that debate. In this paper, we assess the importance of policy and aid in generating growth when the aid, policy, and growth relationship is nonlinear. This allows us to examine the varying effects of aid and policy in different data segments, which we do without imposing any particular structure on the underlying relationship. We find that policy is an important determinant of growth. We also find partial corroboration of the view that aid is growth enhancing in a good policy environment, and some evidence of diminishing returns to aid. These findings suggest that nonlinearities if not appropriately addressed fail to capture the detailed underlying dynamics and thereby mask some key features of the aid‐policy‐growth relationship.
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