Macroeconomic Determinants of Migrant Remittances to Caribbean Countries: Panel Unit Roots and Cointegration

Abstract

This article examines the macroeconomic factors influencing the flow of remittances to selected English-speaking Caribbean countries. A balanced two way fixed effects (FE) model, a random effects (RE) model and the adjusted fully modified ordinary least squares (FMOLS) model (designed to correct biases in OLS)are employed in estimating a relationship between per capita remittances and selected macroeconomic variables. This article also examines the time series properties of the data within a panel unit root and cointegration framework and in this respect, adds an important new dimension to the time series models on remittances by removing the possibility of a spurious relationship (Pedroni 1995,1997, 2000). The results strongly suggest that there is cointegration among the variables, and that remittances are influenced not only by altruistic motives but also by the investment motive in financial instruments. In addition, the results further indicate that there may be scope for public policy to increase these flows

The macroeconomics of remittances in the Philippines

“…This problem is aggravated in a panel data framework due to potential dynamic heterogeneity over the cross sections. The study of Alleyne et al (2008) showed how the fully modified ordinary least squares (FOMLS) can be adjusted to make inferences in cointegrated panels with heterogeneous dynamics, while overcoming the problems in OLS, including endogeneity. In our model, we used Chami et al (2003) method of two-stage least squares to address the issue of endogeneity.…”

“…In this equation, ρ e could capture the UIP disturbances or effects of persistent movements in the risk premium. Equation 4then feeds into the BSP reaction function in equation (1). To determine the link between the real exchange rate and the nominal exchange rate, it is assumed that deviations from purchasing power parity occur in the short-run.…”

“…The literature on remittances claims that remittances are driven by either altruistic or investment motives (see e.g. Alleyne et al, 2008;Bouhga-Hagbe, 2004;and Buch et al 2002). The first sees remittances as a form of altruism from relatives overseas; they care for their family back home.…”

Balance of Payments‐constrained Growth in Developing Countries: A Theoretical Perspective

“…The relevance of the model to developing economies can be enhanced by further adaptation of the balance of payments constraint to include two important aggregates: net interest payments (Moreno‐Brid, 2003) and net transfers. The latter is particularly important as, unlike other forms of capital inflows, net transfers have no corresponding obligations and it is largely a consequence of nationals migrating to developed countries and sending back foreign exchange (Alleyne et al. , 2008).…”

“…Metroeconomica 59:2 (2008) 189-202 doi: 10.1111/j.1467-999X.2008.00299.x important source of capital inflow for many developing countries. Net transfers have surpassed development assistance and are more stable than foreign direct investment and thus must be treated as a separate resource inflow (Ratha, 2005;Giuliano and Riuz-Arranz, 2006;Alleyne et al, 2008).…”