The Impact of Remittances on Domestic Investment in Developing Countries: Fresh Evidence From the Asia-pacific Region

Abstract

Despite the sharply increasing remittances in developing countries (especially in the AsiaPacific region), the relationship between remittances and domestic investment in recipient countries has not been fluently evidenced. This paper aims to fill the empirical gap in the Asia-Pacific region by investigating the impact of remittances on domestic investment with a sample including nineteen developing countries based on time series data from 1980 to 2015. However, our findings contradict some evidence from other regions. The results robustly confirm that remittances have a negative impact on domestic investment in these countries. Our results also indicate that the annual GDP per capita growth, official development assistance, domestic credit, gross saving, and inflation have a positive impact on domestic investment, however, we conclude that the impact of trade openness on domestic investment has a negative sign in the study period. The paper also provides some policy suggestions with regard to remittance flows in this region.

Does Economic Integration Affect Inequality in Developing Countries? Evidence from a Global Sample

“…Remittance inflows negatively and significantly affect income inequality meaning this variable can help to reduce inequality in Asian and Latin-American developing countries. The impact of the Remittances variable in Asia is stronger than the Latin-American region, this evidence may be Asia is the most remittance inflows in the developing world (Tung et al, 2015;Tung, 2018b;Tung, 2018c). Besides, it can not be concluded in the case of the African region because the coefficient is not significant.…”

Impact of Remittances on Domestic Investment: A Panel Study of Six South Asian Countries

“…Compared to the studies that evidenced positive relationship between remittances and investment, other studies (Mallick, 2012;Tung, 2018) document negative or insignificant relation between the two. Mallick (2012) examined the relationship between remittance inflows and private investment for India from 1966 to 2005.…”

“…However, there are some studies that predict remittances may reduce domestic investment if it is used extensively for consumption instead of funding investment such as physical capital and human capital development (Ahamada & Coulibaly, 2013). Other studies such as Mallick (2012) and Tung (2018) have predicted that remittances may result in a moral hazard or dependency syndrome situation, and this may lower private investment in developing countries.…”

“…Based on the findings, the study assumes that a significant proportion of remittances maybe used for private consumption without production impact. Tung (2018) examine the impact of remittances on domestic investment for 19 Asia-Pacific countries over the period 1980-2015. Results based on panel fixed effect and 2SLS regression method suggest that remittances have a negative impact on domestic investment.…”

“…Some studies (Aggarwal et al, 2011;Barajas et al, 2009;Dzansi, 2013;Lartey, 2011) have found that remittance inflows may have a positive effect on investment in the migrant countries through their impact on macroeconomic stability, consumption smoothing, increased savings and others. Mallick (2012) and Tung (2018) found that remittances may not augment domestic investment since remittances are mostly used for self-consumption rather than productive investment. So, there is no conclusive answer about impact of remittances on domestic investment.…”