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Remittances, Corruption, and Human Development in Latin America

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Abstract

International private transfers from immigrant workers to families and friends have surged in Latin America. These transfers, also known as remittances, grew from a mere US$5 billion in 1990 to US$74.3 billion in 2016, supplementing the income of millions of families in the region. Particularly, remittances can contribute to human development by lifting large populations out of extreme poverty and by enabling better housing, education, and health. However, corruption and weak institutional environments can severely reduce the effectiveness of remittances on the path of development. For instance, remittance recipient households could be discouraged to use these foreign funds to acquire assets due to the cumbersome and corrupt process to legalize property. Using a panel of 26 Latin American and the Caribbean countries over the period of 1985–2016, this study investigates the effects of remittances and corruption on five development indicators. We find that remittances do significantly affect human capital indicators, and more so among countries fighting corruption.

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Notes

  1. The literature on remittances, economic growth and poverty is even larger when using micro-data or national surveys. See Adams (2011), Borja (2012a), and Ruiz and Vargas-Silva (2010).

  2. The control variables in our model are used by others such as Dollar and Kraay 2002, Easton and Montinola 2017, Gupta et al. 2009, Ravallion 1997, and Zhunio et al. 2012. All DIs are in levels. For instance, DI1, poverty headcount ration, is the percentage of the population living on less than $1.90 a day at 2011 international prices (%). Information about these variables is in Appendix Table 10.

  3. See Giuliano and Ruiz-Arranz (2005) and Koechlin and Leon (2007) for a similar approach.

  4. Adams and Page (2005), using 71 countries, show GDP per capita values in the range of −8.5 and − 25.9, while our values range from − 8.01 to − 15.02 (Table 5). Azam and Raza (2016) focuses on education as the source of economic development. The real GDP per capita parameter in this study ranges from 11 to 48, while our parameter in Table 5, Model 5 is 20.48.

  5. The poor ODA results are in line with those observed in Boone (1996), Borja (2017), and Lensink and White (2001). A possible explanation is that families tend to treat ODA as a sporadic income and use it for basic consumption rather than education or health. Another explanation is that ODA becomes effective at improving economic growth and development once adequate institutions are set in place (see Burnside and Dollar 2000).

  6. We also used CI-average plus one standard deviation from the mean. The overall results do not change. In most cases, the marginal effect is higher than those observed without the corruption indicators.

  7. Table 9 provides only the parameter values for REM and MgREM. The results from the rest of the control variables are omitted due to space limitation, but the statistical significance of GDP per capita and government expenditure are preserved throughout all regressions. The authors can provide complete tables upon request.

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  1. Department: Economics, The University of Tampa, 401 W. Kennedy Blvd., Box O, Tampa, FL, 33606, USA

    Karla Borja

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Appendix 1

Appendix 1

Table 10 Variable Description and Sources
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Appendix 2

Table 11 LAC Countries and Remittances (2017)
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Borja, K. Remittances, Corruption, and Human Development in Latin America. St Comp Int Dev 55, 305–327 (2020). https://doi.org/10.1007/s12116-020-09299-1

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