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Remittances, Regime Type, and Government Spending Priorities

Abstract

Previous work suggests that remittances enable governments to reduce spending on public services and divert resources to serve their own interests. We argue this need not occur. Building on recent work which shows that the impact of remittances is contingent on the domestic environment in remittance-receiving countries, we hypothesize that (1) remittances are more likely to increase government spending on public services in democracies than in autocracies and (2) remittances are more likely to finance activities that deter political competition in autocracies than in democracies. Using a sample of 105 developing countries from 1985 through 2008, we find strong support for our hypotheses when examining the impact of remittances on public education, health, and military spending. We also provide suggestive evidence for the mechanism underpinning our results: micro-level evidence on remittance recipients’ preferences and political engagement.

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Notes

  1. See Ghosh (2006) for a review of remittances’ economic effects.

  2. See Mosley and Singer (2015) for a review of remittances political consequences.

  3. Recent exceptions include Ahmed (2012), Doyle (2015), and Bearce and Park (2015).

  4. While they may differ slightly in details, several scholars argue that democracies provide more public services than autocracies because they have to appease a broader range of political supporters (e.g., Bueno de Mesquita et al. 2003; Lake and Baum 2001). Several empirical studies confirm this argument (e.g., Ansell 2008; Kaufman and Segura-Ubiergo 2001; Lake and Baum 2001; Stasavage 2005).

  5. Doyle provides some evidence for a larger sample of developing countries, but advises caution in interpreting results of this broader analysis because it includes few controls. Because Doyle’s work (2015) is closest to ours, we consider it more fully in the “Discussion.”

  6. See Ansell (2008) for a formal model of this argument with respect to public education.

  7. While our argument is based on Lake and Baum (2001), it is consistent with that of Bueno de Mesquita and Smith (2009) who argue that when threatened with the possibility of regime change, incumbents with large winning coalitions will increase core public goods.

  8. See Electronic Supplementary Material (ESM) Appendix 1 for the countries in our sample.

  9. The data are available at http://www.imf.org/external/pubs/ft/sdn/2011/data/sdn1115.xls.

  10. The data are available at http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/0,contentMDK:22759429~pagePK:64165401~piPK:64165026~theSitePK:47688300.html.

  11. In contrast, the commonly used Polity IV measure does not take into account the nature of elections and participation, and seems mainly to represent institutional constraints on the executive (Gleditsch and Ward 1997).

  12. Although combining unit fixed effects and lagged dependent variables may result in “Nickell bias,” we expect this bias to be low given our relatively long time-series (1985–2008). Models without lagged dependent variables (not shown) generate similar results.

  13. Design of all government spending models is similar throughout the paper.

  14. ESM Appendix 4 presents graphs that show results for the full range of sample regime values.

  15. Data on military expenditures are from the Correlates of War (COW) National Material Capabilities Dataset.

  16. See ESM Appendix 3 for a description of these variables.

  17. As we did in Fig. 1, we plot marginal effects that encompass cases up to the 95th percentile. A graph with the full range of observations is presented in ESM Appendix 5.

  18. For a more complete picture of remittances’ effects on the ratio of military to education and health spending, see ESM Appendix 15.

  19. Data available at: www.LapopSurveys.org.

  20. When calculating odds for responses in democracies, we set regime = 0.9 for these and subsequent models. In the sample, regime ranges from 0 to 0.94.

  21. Sample mean for the rescaled VID is 0.52.

  22. The variable protest has three categories: sometimes, almost never, and never. Given the fairly weak language differentiating between protesting sometimes and almost never, we collapsed responses for these two categories. Protest is thus coded 1 if the respondent chose either of the first two categories (20% of cases), and 0 otherwise (80% of cases).

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Acknowledgements

We thank Covadonga Meseguer, Achim Kemmerling, Faisal Ahmed, Abby Cordova, David Doyle, Jonathan Hiskey, Stephen T. Easton, John T. Scott, and two anonymous SCID reviewers for helpful comments on earlier drafts. All errors are our own.

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Correspondence to Malcolm R. Easton.

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Easton, M.R., Montinola, G.R. Remittances, Regime Type, and Government Spending Priorities. St Comp Int Dev 52, 349–371 (2017). https://doi.org/10.1007/s12116-016-9233-7

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Keywords

  • Remittances
  • Regime type
  • Government finance