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Remittances and economic growth in Africa, Asia, and Latin American-Caribbean countries: a panel unit root and panel cointegration analysis

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Abstract

This study estimates the macroeconomic impact of remittances and some control variables such as openness of the economy, capital/labor ratio, and economic freedom on the economic growth of African, Asian, and Latin American-Caribbean countries using newly developed panel unit-root tests, cointegration tests, and Panel Fully Modified OLS (PFMOLS). We use annual panel data from 1985–2007for 64 countries consisting of 29 from Africa, 14 from Asia, and 21 from Latin America and the Caribbean region, respectively. We find that remittances, openness of the economy, and capital labor ratio have positive and significant effect on economic growth for all regions as a group and in each of the three in study. While the economic freedom index also has a positive and significant effect on growth in Africa and Latin America, however, its effect on the economic growth of Asia is mixed.

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Notes

  1. See also Maddala and Wu (1999)

  2. See STATA 11 handbook (2009).

  3. We followed Newey and West (1994)

  4. \( \emptyset = - \left( {1 - \mathop \sum \limits_{j = 1}^p {\gamma_{it}}} \right), {\theta_i} = \frac{{\mathop \sum \nolimits_{j = 0}^q {\delta_{ij}}}}{{\left( {1 - \mathop \sum \nolimits_k {\gamma_{ik}}} \right)}}, \gamma_{ij}^* = - \mathop \sum \limits_{m = j + 1}^p {\gamma_{im}} j = 1 \ldots ..P - 1, and \delta_{ij}^* = - \mathop \sum \limits_{m = j + 1}^q {\delta_{im}} j = 1 \ldots \ldots ..q - 1. \)

  5. Reverse causality is not a problem if the variables are I(1). This is because in that case there exist the superconsistent property.

  6. Note that Westerlund (2007) argues that we should rely more on the Pt test in our analysis because it is more robust. The reasoning is that since the Pa statistic is normalized by T, this may cause the test statistic to reject the null too frequently. His simulations also show that the Pt statistics is more robust to cross-sectional correlations.

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Authors and Affiliations

  1. Department of Accounting and Economics, Black Hills State University, Spearfish, SD, 57799, USA

    Christian Nsiah

  2. Department of Economics and Finance, Middle Tennessee State University, Murfreesboro, TN, 37132, USA

    Bichaka Fayissa

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  1. Christian Nsiah
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  2. Bichaka Fayissa
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Correspondence to Bichaka Fayissa.

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Table 7 Country list
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Nsiah, C., Fayissa, B. Remittances and economic growth in Africa, Asia, and Latin American-Caribbean countries: a panel unit root and panel cointegration analysis. J Econ Finan 37, 424–441 (2013). https://doi.org/10.1007/s12197-011-9195-6

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