Econometric Analysis of the Relationship Between Domestic Economic Growth and Levels of Inflow of Remittances Among Developing Countries

Abstract

The international global migration has produced an exponential growth of remittances, which can be defined as the transfer of funds from one country to another. Remittances have grown as a consequence of the increasing labor migrant population’s ability to send surplus of funds from their current country of residence and work to their homeland i.e. the country receiver. According to the World Bank Remittance Data, the total remittances flow of 2019 reached an all-time high value of $689 billion (Financial Times, 2019), as $558 billion of these transactions ended up in low and middle income countries (LMICs) (The World Bank, 2021). These inflows remained consistent even during 2020, a year of a global pandemic, with $550 billion towards the low and middle income economies (The World Bank, 2021). The last two annual values surpassed the total amount of foreign direct investment, private capital flow, or foreign aid, all of which are still more popularized as the main methods of reducing global disparities and promoting economic growth in the developing world. This study would inspect the macroeconomic impact of remittance inflow on economic growth using panel regression, covering the period from 1981 to 2020 and focusing on a sample of 152 countries, then filtered by 4 geographical regions for additional analysis. Like many studies before, a general consensus about an overall effect of the flows on global level could not be reached in this study following the analysis of the general sample. However, on a more specific regional analysis like this study intended to provide, the results have given slightly clearer answers. Finding a positive significant coefficient in the sample regression of the African nations pushes forward the claim of remittances playing important role for actually increasing the cap of savings and thus investment options in developing nations. On the other hand, a negative significant coefficient for the Caribbean, Central, and South American countries’ sample suggests support of the claim of higher remittance inflows being a probable reaction to, not an actual reason for decreasing domestic output i.e. a support for their counter-cyclical nature.