Remittances and economic growth in Africa, Asia, and Latin American-Caribbean countries: a panel unit root and panel cointegration analysis

Abstract

This study estimates the macroeconomic impact of remittances and some control variables such as openness of the economy, capital/labor ratio, and economic freedom on the economic growth of African, Asian, and Latin American-Caribbean countries using newly developed panel unit-root tests, cointegration tests, and Panel Fully Modified OLS (PFMOLS). We use annual panel data from 1985-2007for 64 countries consisting of 29 from Africa, 14 from Asia, and 21 from Latin America and the Caribbean region, respectively. We find that remittances, openness of the economy, and capital labor ratio have positive and significant effect on economic growth for all regions as a group and in each of the three in study. While the economic freedom index also has a positive and significant effect on growth in Africa and Latin America, however, its effect on the economic growth of Asia is mixed. AbstractThis study estimates the macroeconomic impact of remittances and some control variables such as openness of the economy, capital/labor ratio, and economic freedom on the economic growth of African, Asian, and Latin American-Caribbean countries using newly developed panel unit-root tests, cointegration tests, and Panel Fully Modified OLS (PFMOLS). We use annual panel data from 1985-2007for 64 countries consisting of 29 from Africa, 14 from Asia, and 21 from Latin America and the Caribbean region, respectively. We find that remittances, openness of the economy, and capital labor ratio have positive and significant effect on economic growth for all regions as a group and in each of the three regions of the study. While the economic freedom index also has a positive and significant effect on growth in Africa and Latin America, however, its effect on the economic growth of Asia is mixed.

The Dynamic Interaction among Remittances and Macroeconomic Variables : Evidence from Sub-Saharan Africa

“…This likely occurs because as prices increase in the home country, Africans living abroad must increase the amount of remittances sent home to maintain the same standard of living for their families. This finding is also consistent with idea proposed by Nsiah and Fayissa (2013) that remittances are compensatory income. Hence, as inflation increases unexpectedly, more remittances must be sent home to maintain purchasing power.…”

“…Remittances are often viewed as compensatory transfers between family members who lost skilled workers due to migration (Nsiah & Fayissa, 2013).Given their compensatory nature, remittances are often not directed towards investment. Adams (2011), further supports this proposition in a review which finds that while international remittances can have positive effects on poverty, remittances can also have negative effects on the labor supply, education, and economic growth.…”

Impact of Worker Remittances on Economic Growth of Pakistan: Analysis of Pakistan s Economy

“…Most recently, Nsiah and Fayissa (2011) had investigate the relationship between economic growth and remittances through panel data of 64 different countries of African, Asian, and Latin American-Caribbean from 1987-2007. They had employed panel unit root and panel co-integration tests to investigate the exact relationship between remittances and economic growth.…”

Remittances and Economic Growth in a Small and Volatile Economy

“…Both policy makers and some economists believe that remittances are crucial for the receiving country's economic activity as they may lead to poverty alleviation, consumption smoothing, and macroeconomic stability. This belief is somewhat justified because remittances in developing countries are found positively related with household welfare but at the same time produce more volatile business cycles [7,12,15]. Yet, whether remittances have any role in economic growth or financial development remains a country-specific question [3,8,9].…”