Output growth volatility and remittances

Matteo Bugamelli and Francesco Patern� ()
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Francesco Patern�: Bank of Italy, Economic Research Department

No 673, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Since output growth volatility has negative effects on growth, poverty and welfare, especially in poorer countries, it is crucial to identify the country-specific factors that affect it. The empirical literature has focused mostly on financial development, policy distortions and globalization variables. Among the latter, attention has been directed in particular to trade and financial openness. We contribute to this literature by adding what we see as the missing globalization variable, the one related to the increasingly important phenomenon of international migrations, namely emigrants' remittances. Remittances can help reduce output growth volatility thanks to their considerable magnitude, stability and low pro-cyclicality. Applying an empirical framework taken from the existing literature to a sample of about 60 emerging and developing economies over the period 1980-2003, we provide robust evidence that remittances are negatively correlated to output growth volatility. Instrumental variable estimation supports our intuition about the direction of causality.

Keywords: output growth volatility; workers’ remittances; compensation of employees; financial development; trade and financial openness (search for similar items in EconPapers)
JEL-codes: E32 F22 J61 O1 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-mac and nep-mig
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Citations: View citations in EconPapers (15)

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Journal Article: Output Growth Volatility and Remittances (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_673_08

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