Impact of Remittances on Economic Growth in Developing Countries: The Role of Openness

Abstract

The paper examines the empirical relationship between remittances and economic growth for a sample of 62 developing countries over the time period 1990-2014. Remittances seem to promote growth only in the 'more open' countries. The study uses a variety of indicators of 'openness' to test the hypothesis that openness of a country increases the growth effects of remittances. The finding, remittances lead to higher growth in open countries, is robust regardless of how 'openness' is defined. Conversely, no significant effect of remittances on growth could be detected in the case of 'less open' countries. That is because remittances are in themselves not sufficient for growth. The extent of the benefit depends on domestic institutions and macroeconomic environment in the receiving country. Unlike the 'less open' countries, 'more open' countries have better institutions and better financial markets to take advantage of the remittances income and channelise them into profitable investments which, in turn, accelerates the rate of economic growth in these countries.

Dose Remittances Matter for Openness and Financial Stability: Evidence From Least Developed Economies

“…Study findings are in line with Beine et al ( 2012 ) and Bang et al ( 2015 ). Only “more open” nations seemed to benefit from remittances (Dastidar, 2017 ), implying that remittances are insufficient for development on their own. The size of the benefit is determined by the recipient country's internal institutions and macro-economic situation.…”

Do Remittances Have a Real Impact on Economic Performance: Evidence from Côte d’Ivoire

“…When this is the case, remittances will tend to undermine productivity and growth in less developed countries (Giuliano and Ruiz-Arranz, 2006). Given that many empirical studies on the remittances and economic growth nexus are inconclusive (Rao and Hassan, 2011;Gapen and al., 2009;Giuliano and Ruiz-Arranz, 2009;Ziesemer, 2012;Barajas and al., 2009;Nwaogu and Ryan, 2015;Ghosh, 2017), the Ivorian evidence presented in this paper could contribute to the debate since no such evidence has been provided on this country to our knowledge. Moreover, the country in an attempt to harness and structure remittances inflow has instituted a special event since 2012 called the "Diaspora for Growth Forum."…”

“…The positive and significant value of the investment on GDP is expected and is consistent with investment theory and in line with studies by (Jouini, 2015;Nyamongo and al., 2012;Ghosh, 2017;Goschin, 2014). Furthermore, the negative and significant value of Error Correction Term (ECT) means that there is an adjustment to the longrun equilibrium.…”

Nexus between foreign direct investment, foreign aid, foreign remittance and economic growth in Bangladesh: Analysis of association

“…A study exploring economic data of 62 developing countries from the period of 1990 to 2014 indicates that when the countries are more open, the remittance boosts the growth. Beside this, this study also claims that the cause behind this happening is that remittance is in itself not adequate for growth, the benefits of the remittance are depended on the macroeconomic environment and the quality of the domestic institution of the remittance receiving country (Dastidar, 2017).The investigation in MENA countries with data from 1980 to 2009 claimed influences of remittance indicates that the remittance stimulates the economic growth when the remittance is invested and it also contributes to growth by boosting the accumulation of human capital (Mim & Ali, 2012). A study of 8 labor-exporting MENA countries claimed influence of remittance is positive with investment and negative with saving at domestic level (Sabra, 2016).…”