Credit Quality in Developing Economies: Remittances to the Rescue?

Christian Ebeke, Boileau Loko and Arina Viseth

No 2014/144, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the link between remittances inflows and nonperforming loans (NPLs) in a large sample of developing countries. Theoretical transmission channels include risk coping, exchange rate and growth impacts. Panel data estimates uncover the significant role of remittance inflows in reducing the size of NPLs in recipient economies. Econometric results also indicate a stronger marginal impact of remittances in a context of high macroeconomic instability, suggesting a significant effect of remittances on the likelihood of the private sector’s credit default during shocks. These results hold even after factoring in: (i) the endogeneity of remittance inflows and, (ii) the use of an alternative estimator (panel fractional logit) aimed at dealing with bounded dependent variables.

Keywords: WP; remittance; remittance inflow; estimate; remittance variable; remittances; nonperforming loans; macroeconomic volatility; financial stability; instrumenting remittance; stability nexus; remittances trend; NPL ratio; Production growth; Credit booms; Credit; Middle East; East Asia; North Africa; South Asia; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 20
Date: 2014-08-08
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Citations: View citations in EconPapers (5)

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