Economic informality and the venture funding impact of migrant remittances to developing countries

In developing countries, weak institutional capacity to observe and regulate the economy discourages foreign capital inflows vital to venture investment. This informality effect may differ for migrant remittances, inflows less reliant on formal arrangements. We use institutional and transaction cost theories to propose that informality shifts migrant remittances toward venture funding. Analyses in 48 developing countries observed from 2001 to 2009 support our proposition. When the informal sector exceeds approximately 46% of GDP, remittances increase venture funding availability. Migrants and their remittances are vital to funding new businesses and entrepreneurially-led economic growth in developing countries where substantial informality deters other foreign investors.     

Why do migrants remit?

This paper examines primary incentives of remitting. Using estimated bilateral data on remittances, this paper demonstrates that a rise in the home (remittance‐receiving) country's gross national income (GNI) per capita leads to fewer remittances and that a rise in the host (remittance‐sending) country's GNI per capita motivates migrants to remit more. Real exchange rates and real interest rates have no effect on remittances. These results indicate that altruism is an important and critical component of motivations behind remittances. However, altruism alone does not appear to be a sufficient explanation of the motivations behind remittances. Other incentives such as loan repayment and investment play a non‐negligible role in this regard as well. The degree of altruism is higher for migrants from developing countries in comparison with migrants from developed countries, and it is higher when we define remittances as “personal transfers” rather than “personal transfers and compensation of employees.” The results of the vector error correction model show if remittances deviate from the equilibrium relationship, they will eventually revert.     

The impact of bilateral tax treaties: A multi-country analysis of FDI inflows into India

This paper models the role of tax treaties in promoting foreign direct investment (FDI) with the help of panel data for 14 countries for the period 1993–2011. A fixed effects (least squares dummy variable) model is developed that captures macroeconomic factors such as gross domestic product (GDP) and per capita income (PCI) in ratio form of home to host country. It also includes bilateral tax treaties as a determinant of FDI inflow. The results show that GDP is a major determinant that is demand driven and per capita income is a major determinant that is supply driven. FDI openness of the home countries and population are also significant determinants. The introduction of the treaty had a positive impact on FDI inflows into India. We get largely significant and positive results for the ‘age of the treaty effect’, especially, in the case of Germany, Switzerland and Japan. The main contribution of the paper is to show that both presence and ‘age of treaty’ are important determinants of FDI flows to India. Further, fundamentals like GDP and PCI are major variables that influence FDI inflows.     

Identifying macro-determinants of remittance flows to a developing country: The case of Uganda

This paper employs minimum Lagrange Multiplier (LM) unit root tests for endogenous structural breaks combined with ARCH and GARCH models to investigate how key macrovariables impact diaspora remittances. Since remittances can reverse-cause exchange rate movements and domestic income, we use changes in the world price of oil denominated in U.S. dollars to proxy movements in the Uganda shilling nominal effective exchange rate. To control for endogenous bias between remittances and income, we use rainfall shocks as proxies for income shocks in a non-oil-producing developing economy dominated by agricultural sector and its related activities. In addition, large movements in oil price and rainfall shocks typically cause large supply shocks that can significantly impact size of remittance inflows. We control for interest rate differential, political business cycles and seasonality. Results indicate that accounting for structural change in intercepts (levels) and slopes (trends) of key macroeconomic determinants of remittances around their major structural break points significantly increases their explanatory power. In particular, positive (negative) innovations in income and depreciation (appreciation) in the currency of a recipient developing country are negatively (positively) correlated with remittance inflows. These results are robust across different model specifications.     

Synchronised Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate

Because many authors have proposed stimulating the ailing Japanese economy by monetary expansion and yen depreciation, we explore the repercussions of depreciating the yen against the dollar on the other East Asian economies – which largely peg to the dollar. Since 1980, economic integration among Japan's neighbours – China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand – has intensified and (except for China and Singapore) their business cycles have been highly synchronised. These cycles have been closely linked to fluctuations in the yen/dollar exchange rate – through changes in the export competitiveness, inflows of foreign direct investment and intra‐Asian income effects. We show that a major yen devaluation would have a negative impact on incomes in other East Asian economies and that it is not a sensible policy option for Japan.     

Remittances,investment and growth in sub-Saharan Africa

Several studies have examined the impact of remittances on economic growth, yet the results remain largely inconclusive. I present an analysis of the relationship between remittances and per capita growth, and investigate whether the impact of remittances on growth is through capital accumulation or other mechanisms. Using data for sub-Saharan African countries and dynamic empirical models, I find that there is a positive relationship between remittances and growth, as well as a positive interaction effect between remittances and financial depth on growth. The findings also reveal threshold values for two main indicators of financial development, above which the total effect of remittances on growth is positive. The results further provide evidence for the existence of an investment channel through which remittances affect growth, and indirect evidence that remittances contribute towards a stable macroeconomic environment, and hence, growth, through a consumption smoothing effect.     

Remittance Receipt and Business Ownership in the Dominican Republic

Using household‐level data from the Dominican communities in the Latin American Migration Project (LAMP‐DR7), we examine the links between remittance receipt and business ownership. We find that while the existence of a family business attracts remittance inflows, these monetary funds are associated with a reduced likelihood of business entrepreneurship. These results are consistent with various hypotheses regarding remittances and business investments. First, remittances may be motivated by the availability of investment opportunities in the home community. Second, remittances may respond to a bequest motive on the part of the emigrant, who may wish to lay claim on family assets when returning home. Lastly, remittances may cause an income effect that reduces family labour force participation and, correspondingly, the likelihood of family‐run business investments.     

Problems of developing and transition economies

ABSTRACT

The Solow growth model was extended to account for the graft by corrupt individuals from domestic savings, which could have been used for productive capital accumulation, the productive stock of capital to be augmented by foreign direct investment (FDI), and the expatriation by FDI international investors. The results indicate that higher levels of FDI inflows, savings rates, and more advanced technology embedded productive capital would result in higher steady-state per capita productive capital to labor ratio. The graft from domestic savings, expatriation of FDI, and growth rate of labor negatively affect steady-state per capita productive capital to labor ratio.     

Migrants' remittances and economic activity

The impact of migrant workers' remittances on economic activity in their home countries was long overshadowed by the manifestly positive balance of payments effect. Only gradually did it come to be recognized that it was not just the scale of remittances but also the way in which they are used that is of crucial significance for the economies of the migrants' home countries. This article estimates the contribution that such remittances made to GDP, private consumption expenditure, saving and imports in Portugal, Spain, Italy, Greece and Turkey in the period from 1960 to 1981.     

中国吸引外资对东南亚国家吸引外资影响的实证研究

中国吸引外资的浪潮引起了人们普遍的忧虑,中国吸引外资是否会导致流入东南亚国家的外资逐渐减少。本文在假定外资的供应是有弹性的前提下,利用对外投资区位决定因素的模型和固定效应分析方法来检验中国吸引外资与东南亚经济体吸引外资间的关系。结果显示在1986年至2001年间,中国吸引外资的增长实际上提高了邻国经济吸引外资的能力,而不是排挤了邻国外资的流入。     

The impact of civil war on foreign direct investment flows to developing countries

We investigate the impact of civil war on foreign direct investment (FDI) flows to developing countries. We employ a new data-set that disaggregates FDI inflows to primary, secondary and tertiary sectors. Second, we control for a richer set of economic and institutional variables that could determine FDI inflows including population, gross domestic product (GDP) per capita, the degree of trade openness, exchange rate variability, inflation, the governance structure of the host country using International Country Risk Guide data and its regime type using the POLITY autocracy–democracy data. We also address the reverse causality between FDI and conflict and the potential endogeneity of explanatory variables by employing dynamic system generalised method of moments (GMM) techniques in estimation. Our results indicate that primary sector FDI flows to developing countries are not significantly affected by civil war, whereas secondary and tertiary sectors FDI are more sensitive to such outbreak, potentially leading to reversals of existing FDI. Among institutional variables, government stability and control of corruption are more significant compared to regime type, law and order, and bureaucratic quality.     

Workers' remittances and Dutch Disease in Bangladesh

Workers' remittance is one of the major sources of foreign exchange earnings for Bangladesh in recent years. It accounted for 12% of GDP in 2009 and has colossal socio-economic implications for the country. However, the inflows of foreign exchange earnings can exert adverse effects on the international competitiveness of an economy as postulated by the Dutch Disease theory. Using Johansen Cointegration and Vector Error Correction Model and annual data from 1971 to 2008, this paper investigates the effects of remittances on the external trade competitiveness as measured by the movements of real exchange rate of the country. The results of the study suggest that the influx of workers' remittances significantly appreciates the real exchange rate and deteriorates the external trade competitiveness of Bangladesh. While increased terms of trade indicates similar adverse effects, openness in goods and capital markets and nominal devaluation improve the trade competitiveness of the country. Therefore, greater trade openness and channelling remittances to the priority investment projects can be powerful policy devices to improve the external competitiveness and avert ‘Dutch Disease' in Bangladesh.     

Determinants of Foreign Trade in China's Textile Industry

The article sets out to examine whether the volume of bilateral trade between China and 40 of its trading partners in the up-, mid-, and downstream segments of the textile industry is affected by factors such as GDP, per capita GDP, geographic distance, FDI outflows and inflows, openness to trade, and bilateral investment treaties. The significant negative correlation between import/export volume and distance reflects the close trading relations between China and the other countries of East Asia. A home market effect is evident for downstream exports. China's FDI outflows stimulate growth in midstream textile product exports.     

Aid for trade and trade policy in recipient countries

ABSTRACT

This article explores the impact of Aid for Trade (AfT) flows on trade policy in 123 recipient countries over the period of 2002 to 2015. It shows empirical evidence that AfT interventions are conducive to trade policy liberalization. These results apply to both the entire sample and to the sub-sample of least developed countries (LDCs). Additionally, the analysis shows that the lower the development level, the higher the positive impact of AfT inflows on recipient countries’ trade policy liberalization, although above the US$ 4,885.40 threshold of real per capita income, AfT inflows exert no significant impact on trade policy.     

中国FDI激增对东南亚FDI的影响:基于1986-2001年板面数据的分析

近几年来,针对中国对外直接投资流入量激增这一现象,有些学者认为其挤占了东南亚经济体的投资。本文采用固定因素估计量,运用FDI区位决定因素模型来测算中国FDI与东南亚经济体FDI之间的关系。结果表明,1986-2001年间中国是提高而不是分流了其邻国的FDI。     

FDI,Growth and the Asian Financial Crisis: The Experience of Selected Asian Countries

This paper studies the trends in foreign direct investment (FDI) flows into selected South‐East Asian and East Asian economies after the Asian crisis. Empirical evidence indicates that South‐East and East Asian economies are recovering from the Asian crisis with strong output growth driven largely by export growth. However, output growth in the post‐crisis period is also accompanied by rising unemployment rates, growing government deficits, and declining FDI inflows into the South‐East Asian region. The declining FDI inflows into South‐East Asia after the crisis is of concern, as our empirical results show that FDI is important for output growth in the region. Our results also suggest that there might have been structural changes in the regional economies that could have led to a downward shift in the output growth of Asian economies in the post‐crisis period. This raises the issue of the sustainability of their output growth in the post‐crisis period.     

Are the Direct and Indirect Growth Effects of Remittances Significant?

Development economists believe that migrant workers’ remittances are an important source of funds for long‐run growth. Therefore, recent studies have investigated the growth effects of remittances but reached different conclusions. In these studies, the rate of growth of output is simply regressed on both remittances and the channels through which remittances affect growth. Thus, no distinction has been made between the indirect and direct growth effects of remittances. Such regressions may give unreliable estimates because the channels may also capture some growth effects of remittances, making the growth effects of remittances insignificant. In this study, we make a distinction between the indirect and direct growth effects of remittances. Our model is estimated with panel data of 40 high remittance recipient countries with the system generalized method of moment. We found that remittances have no direct growth effects but they have small indirect growth effects.     

Capital Inflows and the Real Exchange Rate: A Comparative Study of Asia and Latin America

The nexus of real exchange rate (RER) and capital inflows is examined through a comparative analysis of the experiences of emerging market economies in Asian and Latin America during the period 1985‐2000. It is found that the degree of appreciation in RER associated with capital inflow is uniformly much higher in Latin American countries compared to their Asian counterparts, despite the fact that the latter experienced far greater foreign capital inflows relative to the size of the economy. The econometric evidence suggests that both the composition of capital flows and differences in the degree of response of RER to capital flows matter in explaining these contrasting experiences. While RER appreciation is a phenomenon predominantly associated with other (non‐FDI) forms of capital inflows (OCFW), a given level of OCFW brings about a far greater degree of appreciation of the real exchange rate in Latin America where the importance of these flows in total capital inflow is also far greater. On the policy front, Asian countries seem to have used fiscal contraction and nominal exchange rate adjustment more effectively to cushion the RER against the appreciation pressure of capital inflows. There is, however, no evidence to suggest that sterilised intervention can generate a lasting impact on the real exchange rate.     

Competition among the regions in Euroland

Following the introduction of the euro, competition among individual EMU countries for jobs and capital investment is likely to be increasingly replaced by competition among regions. Will this enhance convergence of per capita incomes or will it, rather, contribute to widening the gap between the rich and the poor regions of Euroland?     

基于制造业和服务业的外商直接投资流入动机分析

在邓宁的区位优势理论基础上,本文选择经济发展水平、市场容量、劳动力工资水平、基础设施、集聚效应、自然资源、制度因素、对外开放程度和产业结构等要素,利用我国1994-2007年的面板数据,对我国制造业FDI和服务业FDI进行比较,分析外商直接投资的动机。结果发现我国的经济发展水平、市场容量、集聚效应、自然资源是制造业FDI流入的主要动机;经济发展水平、市场容量、制度因素和开放程度是服务业FDI流入的主要动机。