Reopening the debate on the relationship among remittances, household consumption stability and economic growth in emerging markets

Abstract

PurposeThe impact of remittances on household consumption stability and economic growth is not quite clear. This paper attempts to reopen the debate on the relationship among these three variables. The current remittance literature suggests that a decrease in household consumption volatility, induced by remittances, automatically leads to economic growth. This paper challenges these arguments by stating that, under certain circumstances, there is no automatic relationship among remittances, household consumption stability and growth.Design/methodology/approachThe authors approach the question from the perspective of emerging Central, Eastern and Southeastern European (CESEE) countries. The authors use the two-step system generalized method of moments (GMM) estimator with the Windmeijer (2005) finite-sample correction. To test the existence of the possible non-linear effects of remittances on household consumption stability and economic growth, the authors use threshold regressions.FindingsThe authors find that remittances significantly reduce household consumption volatility. They exhibit a consumption-smoothing effect on recipient households. This stabilizing effect happens not through the preventive role of remittances, but rather through their compensatory role. Remittances produce a weaker stabilizing effect on household consumption when the remittance to GDP ratio of the recipient country is above the estimated threshold level of 4.5%. The authors also find that there is a negatively significant and linear impact of remittances on growth. There is no evidence to suggest that remittances can foster productive investment and therefore promote economic growth in CESEE countries, which means that: (1) the remittances cannot be treated as a source of funds to invest in human and physical capital and (2) the remittances are compensatory rather than profit-oriented.Originality/valueAs far as the authors are aware, this is the first study that investigates the impact of remittances on both household consumption stability and economic growth simultaneously.

Remittances, institutional quality and investment in Sub-Saharan Africa

“…This supports the argument that remittances are an essential source of funding for SSA investment. Our findings are in contrast with Eftimoski and Josheski (2020)'s results but in line with those of Bjuggren and Dzansi (2008) and Nwokolo et al. (2021).…”

“…According to their findings, only 10% of remittances are spent on productive investments, 14% on housing and the remaining 76% on consumption. Eftimoski and Josheski (2020) also stated that remittance cannot be considered a source of capital for investment. Similarly, Tung (2018), using data from 1980 to 2015, agreed that remittances have a detrimental effect on investment in 19 Asia–Pacific countries.…”

Household welfare in the digital age: Assessing the effect of mobile money on household consumption volatility in developing countries

“…Our outcome variable is consumption volatility. 6 Drawing on the literature, especially that on migrant remittances (see for instance Fatás and Mihov, 2003;Combes and Ebeke, 2011;Ding et al, 2018;Mondal and Khanam, 2018;Eftimoski and Josheski, 2020), we measure consumption volatility by the standard deviation of the real household consumption per capita growth rate estimated over a 5-year moving window. We collected the real household consumption per capita growth rate from the World Development Indicators (WDI) for its estimation.…”

“…However, we expect a positive sign for urban population growth and labor force as mobile money transactions are mainly from urban to rural areas and fulfill a need for distant payments (Buku and Meredith, 2012;Della Peruta, 2018;Eftimoski and Josheski, 2020). 7 The definitions and sources of all variables, as well as the sample countries, are presented in Tables C1 and C2 (Appendix A), and the last section of Appendix B.…”

Effects of International and Internal Remittances on Financial Inclusion in Ghana

“…FromTable 3, out of a total of16,759 respondent households who received no remittances from abroad, 15,995 (95.4%) have not also received internal remittances. 764 (4.60%) who have not received external remittances received internal remittances.…”