International migration,remittances, and schooling: evidence from El Salvador

We examine the effect of remittances from abroad on households' schooling decisions using data for El Salvador. Following the massive war-related emigration of the 1980s, remittances became a significant source of household income throughout the 1990s. We use the Cox proportional hazard model to examine the determinants of school attendance. Measuring income from a source that is uncorrelated with parental schooling—remittances—, we find that remittances have a large, significant effect on school retention. We estimate that while household income net of remittances has a small, though significant, impact on the hazard of leaving school in rural and urban areas, remittances have a much larger impact on the hazard of leaving school. In urban areas, the effect of remittances is, at its smallest, 10 times the size of the effect of other income. In rural areas, the effect of remittances is about 2.6 times that of other income. Our finding is of interest in that it suggests that subsidizing school attendance, particularly in poor areas, may have a large impact on school attendance and retention, even if parents have low levels of schooling.     

Do large capital inflows hinder competitiveness? The Dutch disease in Ethiopia

This article investigates whether large inflows of foreign aid and remittances have had a damaging impact on the Ethiopian Real Exchange Rate (RER). We improve the current empirical literature by: (i) compiling a unique quarterly dataset to provide a larger sample size and enable the modelling of important intra-year dynamics – which should lead to better model specifications; (ii) providing a new empirical approach (Unobserved Components (UC)) to test the ‘Dutch disease’ hypothesis; and (iii) using several cointegration approaches to further test the robustness of our conclusions. Our results suggest that there are two main long-run determinants of the RER in Ethiopia: trade openness is found to be correlated with RER depreciations, while a positive shock to the terms of trade tends to appreciate the RER. Foreign aid is not found to have a statistically significant impact, while there is only weak evidence that remittances are associated with RER appreciations. The lack of empirical support for the ‘Dutch disease’ hypothesis suggests that Ethiopia has been able to effectively manage large capital inflows, thus avoiding major episodes of macroeconomic instability. We believe that most African countries will therefore be able to absorb large inflows of foreign capital without damaging their external competitiveness.     

How does the flow of remittances affect the trade balance of the Middle East and North Africa?

ABSTRACT

The Middle Eastern and North African (MENA) economies have one of the highest degrees of dependency on received remittances worldwide. In this study, we have examined the role of remittances in the trade balance of 11 labour abundant MENA countries. Our panel regression analysis showed that the inflow of remittances has fostered the trade deficit. We also found that the final effect of remittances depends on the level of domestic capital formation. The results are robust after controlling for other drivers of trade deficit such as income, inflation, exchange rate and institutions as well as country and year fixed effects.     

Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in Developing Countries: A Dynamic Heterogeneous Panel Analysis

The study examines the role of foreign capital and remittance inflows in the domestic savings of 63 developing countries for 1971–2010, paying attention to likely differential effects of FDI, portfolio investment, foreign aid and remittances. The conventional homogeneous panel estimates suggest that foreign aid and remittance flows have a significant negative impact on domestic savings. However, these techniques ignore cross‐section dependence and parameter heterogeneity properties and hence yield biased and inconsistent estimates. When we allow for parameter heterogeneity and cross‐sectional dependence by employing Pesaran's ( 2006 ) Common Correlated Effects Mean Group estimator technique, only remittances crowd out savings.     

Consumption Effects of Foreign Remittances in Jamaica

The term remittances refers to proceeds from the migration of labor that are sent to aid individuals remaining in the migrants’ home communities. In this paper, we investigate whether remittances alter the consumption pattern of recipient households in Jamaica. We present results from an Engel curve estimation specifically using the Working (1943) approach and a two-part fractional response model with instrumental variables to account for selection bias and endogeneity of remittances. The dependent variables are a subsample of the categories of consumption as defined in the Jamaican Survey of Living Conditions and include expenditures on food, schooling, health, gambling, alcohol and donations. We find that receipt of remittances significantly alters the recipient households’ expenditure allocations relative to other sources of income, although this effect occurs more through the participation decision. Overall, total effects of remittances are largest in the areas of luxury expenditures and home production, and to a lesser extent for education and grocery store purchases. These findings have significant implications for those remitting, those receiving, and governments looking to understand this large flow and less documented source of income.     

Macroeconomic effects of international remittances: The case of developing economies

Over the past few decades international workers' remittances have significantly contributed to the foreign exchange reserves of the developing countries. While these household level remittance flows have often been associated with poverty alleviation, positive welfare gains and even as an alternate source of development finance, a detailed study of the effects of these flows on a remittance-dependent small developing economy, however shows counterintuitive results. The paper applies the Dutch Disease theory to explain the effects of remittances on the economy and introduces a micro–macro framework to establish channels of transmission of remittances through the economy. The paper shows that international remittances, by altering the household budget constraint, have a direct impact on the micro level household decision making, primarily with respect to the consumption and labor supply decisions. These when aggregated give rise to significant adjustments in the macro level production functions and consumption behaviors, leading to a decline in the output, particularly of the trading sector and an adverse impact on the external sector of the economy.     

Understanding the microenterprise sector to design a tailor-made microfinance policy for Cape Verde

Two of the central challenges faced by Cape Verde at the present are the high level of unemployment and the increasing proportion of the population living in (relative) poverty. Microenterprise development can be an effective means of addressing both problems in a developing country like Cape Verde, where microenterprises account for about 50% of employment. In this paper we provide a detailed profile of Cape Verdean microenterprises and microentrepreneurs and investigate the relationship between their characteristics and the resort to outside seed capital. We find a cluster of factors—the microentrepreneur’s age, gender, level of education and reason for being self-employed—which influence significantly the probability of being in need for external start-up capital. The policy implications of these findings for the design of a specific microfinance program for Cape Verde are discussed.

FDI,Foreign Aid,Remittance and Economic Growth in Developing Countries

Using a dynamic spatial framework, this paper investigates how foreign direct investment (FDI), foreign aid and remittances impact the economic growth of 53 African and 34 Latin American and Caribbean countries. Previous growth studies examine how one factor or two of these factors impacts economic growth, which results in biased estimation because of the omitted variable(s). Separate estimation shows foreign aid and FDI affects economic growth in Africa, but when we control for all three factors, only FDI affects African economic growth. For Latin America and the Caribbean, foreign aid and remittances affect growth when estimated separately, while remittances affect growth when they are estimated simultaneously. Finally, both regions' results confirm spatial interdependence is important in explaining economic growth, as growth in one country depends on the growth of its neighboring countries.     

Aid,Terrorism, and Foreign Direct Investment: Empirical Insight Conditioned on Corruption Control

ABSTRACT

This paper checks the effect of foreign aid on terrorism–foreign direct investment (FDI) nexus, while considering the extent of domestic corruption control (CC). The empirical evidence is based on a sample of 78 developing countries. The following findings were established: the negative effect of terrorism on FDI is apparent only in countries with higher levels of CC; foreign aid dampens the negative effect of terrorism on FDI only in countries with high level of CC. Also, the result is mixed when foreign aid is subdivided into its bilateral and multilateral components. While our findings are in accordance with the stance that bilateral aid is effective in reducing the adverse effect of terrorism on FDI, we find that multilateral aid also decreases the adverse effect of other forms of terrorism that can neither be classified as domestic or transnational. Policy implications are discussed in the paper.     

The Efficiency of Active Labor Market Policies: A Comparative Analysis of Tunisia and OECD Countries’

ABSTRACT

On the third anniversary of the Egyptian revolution and against the backdrop of lingering political instability and deteriorating economic conditions, we diagnose the constraints to sectoral growth in Egypt using the 2011 Egyptian revolution as a natural experiment. We combine quantile regressions to study sector outliers with a difference in difference methodology to capture sectoral behavior before and after revolution. We find that the revolution's effect has been adverse, on average, but heterogeneous across sectors. We identify and characterize sectors most and least impacted. Results reveal that Egypt's fastest growing sectors before Revolution have been the most vulnerable after Revolution. This evidence is supported by our diagnosis approach that shows that faster growing sectors are constrained by continuous increases in prices that threaten export competitiveness (as they erode the benefits accrued to nominal depreciation of currency). Such sectors also benefited from higher monetary growth and fewer constraints on credit availability that have mitigated somewhat the speed of deterioration in the aftermath of the revolution. Our results, which hold under several robustness checks, inform policy priorities as to how to revive investors’ confidence, boost competitiveness, and design priorities in industrial policy to ease structural impediments and align sectoral growth with macro priorities.     

Strategic orientations and participation intentions for technical standardisation

ABSTRACT

Despite the pivotal impact of technical standards on the competitiveness of both nations and firms, few studies explore factors that drive firms to participate in technical standardisation. The current article examines the effect of strategic orientations on such participation, as well as their interactions with political ties and technology turbulence. The findings from 320 Chinese manufacturing firms indicate that both competitor and technology orientations exert positive effects on firms’ intentions to participate in standardisation. Political ties reduce, but technology turbulence strengthens, the effect of competitor orientation. Technology turbulence also weakens the effect of technology orientation on a firm's intention to participate in standardisation.     

Remittances and investment nexus in Bangladesh: an ARDL bounds testing approach

Bangladesh is the 8th largest remittance recipient country in the world and one of the heavily dependent (11 % of GDP) countries of remittances. Despite its importance in policy making in developing countries like Bangladesh, there is absence of any study regarding the effect of remittances on the level of investment. In an attempt to fill the gap, we examine the cointegrating property and stability of the relationship among these variables using the ARDL bounds testing approach combined with CUSUM and CUSUMSQ tests. Our findings show that both remittances and trade openness positively and significantly influence the level of investment in Bangladesh, meaning that contrary to most conclusions found in the literature, migrant remittances in developing countries are not entirely spent in basic consumption needs. We also find that foreign aid has very little and insignificant impact on investment. Finally, we find long-run unidirectional causal relationship running from remittances to investment indicating that favorable policies to increase the flow of remittance will promote investment in Bangladesh.     

Exchange Rate Flexibility and the Effect of Remittances on Economic Growth

This paper studies the question of whether exchange rate policy affects the impact of remittances on economic growth in recipient countries. The findings indicate that more flexible exchange rate regimes are associated with a greater increase in economic growth following an increase in remittances, but also that the impact of remittances on growth is positive under a fixed regime. The results further show that the effect of remittances under a fixed exchange rate regime is positive in less financially developed countries as well, but do not provide conclusive evidence that this effect varies inversely with exchange rate flexibility in such economies as theorized; the results being sensitive to the choice of financial development indicator.     

Barking Up the Wrong Tree: A Reply to Haynes & Husan

The Albanian economy in the 1990s experienced a rapid recovery from its near-collapse in 1992. The rapid economic growth between 1993 and 1996 was exceptional by East European standards, and represented the highest rate of sustained economic growth of all transition economies. This investigation indicates that the standard explanations for recovery and growth in transition economies, such as the pace of economic reform or the levels of domestic and foreign investment, do not adequately explain the rapid growth of the Albanian economy. Factors specific to Albania also need to be considered. The main conclusion drawn here is that the success of the Albanian economy in the mid-1990s rested largely upon the inflow of remittances from Albanians working abroad. These remittances are shown to have been much greater in value than was previously assumed by the IMF: in the region of $700 million per annum rather than $400 million. Remittances are also found to have played a much greater role in Albania's economic recovery than was previously recognised. It is demonstrated that the rise of pyramid investment schemes in 1996 was closely linked to the inflow of remittances. Such schemes are also found to have played a part in fuelling the rapid economic growth in the Albanian economy, before their collapse in 1997.     

Do Financial and Institutional Variables Enhance the Impact of Remittances on Economic Growth in Latin America and the Caribbean? A Panel Cointegration Analysis

Using recently developed panel unit root and panel cointegration tests and the Fully-Modified OLS methodology (FMOLS), this paper estimates the impact of remittances on the economic growth of selected upper and lower income Latin American & Caribbean (LAC) countries over the 1990–2007 period. Despite the large flow of remittances to the region, there have been relatively few empirical studies assessing the impact of remittances on economic growth in LAC. Panel unit root tests suggest that several of the macro variables included in the model exhibit unit roots, yet, at the same time, Pedroni’s panel cointegration test determined that there is a cointegrating relationship among the variables in the estimated model. The FMOLS estimates suggest that remittances have a positive and significant effect on economic growth in both groups of countries. The estimates also indicate that both the degree of economic freedom and credit provided by the banking system have a positive and significant effect on economic growth in upper (middle) income LAC countries. The sign of the interaction term between remittances and the credit (and EFI) variables suggest that remittances act as substitutes for these variables. Finally, the effect of remittances on both sets of countries is stronger in the presence of a financial (credit) variable.     

The effect of remittances on the current account in developing and emerging economies

This paper presents an analysis of the effect of remittances on the current account in developing and emerging economies, incorporating an assessment of the extent to which exchange rate regimes impact the relationship. The main findings suggest that there is a positive effect of remittances on the current account contemporaneously, but that the lagged effect is negative, which could be indicative of the existence of some underlying mechanisms characteristic of the Dutch disease phenomenon. In addition, the results show that a more flexible exchange regime dampens the contemporaneous positive effect that remittances have on the current account. The paper, therefore, asserts that policymakers face trade‐offs pertaining to the use of exchange rate policy in managing the effects of remittances on the current account, which should be given due consideration when such policy choices are made.     

Employment and education discrimination against disabled people in Cape Verde

This article assesses the employment and school enrolment gaps between disabled and nondisabled persons using the last Cape Verdean census. The unexplained part of these gaps accounts for most of them, whatever the age group considered. Furthermore, differences in age structures between disabled and nondisabled persons have almost no effect on these gaps. Taking into account potential misclassification errors in the disability variable seems to change only marginally these results. These findings thus suggest that there is scope for programs to better target and promote employment and education of the disabled in Cape Verde.     

Remittances,transaction costs,and informality

Recorded workers' remittances to developing countries reached $167 billion in 2005, bringing increasing attention to these flows as a potential tool for development. In this paper, we explore the determinants of remittances and their associated transaction costs. We find that recorded remittances depend positively on the stock of migrants and negatively on transfer costs and exchange rate restrictions. In turn, transfer costs are lower when financial systems are more developed and exchange rates less volatile. The negative impact of transactions costs on remittances suggests that migrants either refrain from sending money home or else remit through informal channels when costs are high. We provide evidence from household surveys supportive of a sizeable informal sector.     

HOW DOES SKILLS MISMATCH AFFECT REMITTANCES? A STUDY OF FILIPINO MIGRANT WORKERS

In this article, unit record data on Filipino migrants are used to analyze the issue of skills mismatch, its prevalence, and its impact on remittances sent back home. Results obtained using instrumental variable techniques reveal that significant proportions of highly educated Filipino workers are employed in low‐skilled jobs overseas, with systematic variation by gender and by country of work. We find that skills mismatch impacts significantly on the migrant's remittance behavior, with effects that are differentiated between genders. Specifically, where there is mismatch in the migrant's educational attainment and the migrant's job requirement, we find significant reductions in remittances for men but not for women. (JEL J240, J610, O150)     

Controlling for the underreporting of remittances

Empirical studies that use self-reported data on remittances to measure the latter's impact on microeconomic incentives mostly ignore the potential errors associated with reporting/measurement issues. An econometric procedure to control for these errors is developed and applied to household level data from Armenia. We find evidence of systematic underreporting of remittances. After controlling for this, we find a strong negative impact of remittances on incentives to work.