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Do remittances not promote growth? A finite mixture-of-regressions approach

Empirical Economics volume 54, pages 747–782 (2018)Cite this article

Abstract

This paper re-examines the impact of remittance inflows on growth using data for developing countries over the period 1970–2010. We relax the hypothesis that all countries follow the same unique growth regime in favor of multiple regimes, and test whether the impact of remittances on growth depends on the growth regime to which an economy belongs. We follow the recent literature that has applied the finite-mixture-of-regressions method in other circumstances to endogenously identify growth regimes, correcting for unobserved heterogeneity. We find that our data are best described by an econometric model with two different growth regimes: one in which remittances have a positive and significant marginal impact on growth; and another in which the impact of remittances is insignificant. The analysis of the determinants of the probability of being in the remittances growth-enhancing regime shows that being a Sub-Saharan African country increases significantly this probability, while financial development moderately reduces this probability but with strong reservations on the statistical significance of the estimates on the different indicators of financial development.

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Notes

  1. 1.

    See for instance, Edwards and Ureta (2003), Glytos (2002), Adams and Page (2005), Gupta et al. (2009).

  2. 2.

    See for instance Catrinescu et al. (2009), World Bank (2006) for evidence on the positive effect of remittances on economic growth Chami et al. (2003) and Singh et al. (2011), Barajas et al. (2009), Rao and Hassan (2011) for evidence on the negative association between remittances and economic growth and ; and Senbeta (2012) and Ahamada and Coulibaly (2013) for recent findings on the neutral impact of remittances on growth.

  3. 3.

    The variables are all presented in Sect. 3 below.

  4. 4.

    See for instance Konte (2013) for studies on natural resources and economic growth, and Flachaire et al. (2014) for evidence on institutions and economic growth.

  5. 5.

    See also Owen and Temesvary (2014), Flachaire et al. (2014) and Konte (2013) among others.

  6. 6.

    We consider that the results are unstable when the results change each time we run the same model with the same number of growth regimes.

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Acknowledgements

We would like to thank two anonymous referees, the participants at the CSAE conference, 2015, Oxford, as well as the participants at the DEGIT conference, 2015, Geneva, EMAEE conference, 2015, Maastricht.

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  1. United-Nations University (UNU-MERIT), Maastricht, The Netherlands

    Maty Konte

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  1. Maty Konte
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Correspondence to Maty Konte.

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Konte, M. Do remittances not promote growth? A finite mixture-of-regressions approach. Empir Econ 54, 747–782 (2018). https://doi.org/10.1007/s00181-016-1224-z

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Keywords

  • Remittances
  • Growth regimes
  • Finite-mixture-of-regressions approach

JEL Classification

  • F24
  • O47