Evaluation of the Long-Term Stability and Impact of Remittances and Development Aid on Sustainable Economic Growth in Developing Countries

Abstract

In our paper, we analyse the long-term stability and impact of remittances and development aid on sustainable economic growth in developing countries. We use two data samples from countries that were recipients of both aid and remittances in the corresponding period. First, unbalanced data from the years 1970 to 2017; that is, how countries appear in the data. Second, balanced data, where we selected the largest possible set of countries for which data exists without gaps from the years 1970–2017. This dataset consists of 57 countries for the period from 1991 to 2017. Using linear regression models, we conclude that up until the end of the 1980s, the size of aid as a share of gross domestic product (GDP) was larger than the share of remittances. After that, the situation changed and the shares of both inflows were broadly similar. The inflow of remittances was more stable than the inflow of aid and development aid did not (on the contrary to remittances) contribute positively to sustainable economic growth if we consider the entire period between 1970 and 2017. Our results suggest that a statistically significant relationship between development aid and economic growth (per capita) may be observed only in the period from 1990 to 1999. Economic growth in developing countries is negatively influenced by the uncertainty related to the flows of official development assistance (ODA) and aid in all investigated decades. In the case of the remittance flows, the increased volatility tends to contribute negatively to sustainable economic growth only when the remittance flows represent a relatively higher share of GDP.

Do Remittances Have a Real Impact on Economic Performance: Evidence from Côte d’Ivoire

“…The two move closely together although ODA seems to be more volatile than remittance. This is in line with Stojanov and al., (2019 Sources: Authors…”

Do Remittances Have a Real Impact on Economic Performance: Evidence from Côte d’Ivoire

“…The two move closely together although ODA seems to be more volatile than remittance. This is in line with Stojanov and al., (2019).…”

Ongoing Debate Between Foreign Aid and Economic Growth in Nigeria: A Wavelet Analysis

“…Thus when other factors are held constant, a 1 percent increase in foreign aid will lead to 0.02 percent decrease in economic growth. This shows that foreign aid has a negative interaction with economic growth (Cuberes and Tsui, 2011;Kabete, 2008;Ahmed, 2014;Hotouom, 2015;Kawthar and Mohamed, 2017;Stojanov, Němec, and Žídek, 2019). Note that the 0.09 percent increase in economic growth is as a result of a 1 percent increase in gross fixed capital formation.…”

“…The second dimension depicts the negative aid-growth relationship. This implies that increase in foreign aid will lead to a decrease in economic growth (Cuberes and Tsui, 2011;Kawthar and Mohamed, 2017;Kabete, 2008;Ahmed, 2014;Onyibor et al, 2018;Stojanov, Němec, and Žídek, 2019). The third dimension depicts an insignificant aid-growth relationship.…”