Do Financial and Institutional Variables Enhance the Impact of Remittances on Economic Growth in Latin America and the Caribbean? A Panel Cointegration Analysis

Miguel Ramirez

No 1202, Working Papers from Trinity College, Department of Economics

Abstract: Using recently developed panel unit root and panel cointegration tests and the Fully-Modified OLS methodology, this paper estimates the impact of remittances on the economic growth of selected upper and lower income Latin American & Caribbean (LAC) countries over the 1990-2007 period. Despite the large flow of remittances to the region, there have been relatively few empirical studies assessing the impact of remittances on economic growth in LAC. Panel unit root tests suggest that several of the macro variables included in the model exhibit unit roots, yet, at the same time, Pedroni’s panel cointegration test determined that there is a cointegrating relationship among the variables in the estimated model. The FMOLS estimates suggest that remittances have a positive and significant effect on economic growth in both groups of countries. The estimates also indicate that both the degree of economic freedom and credit provided by the banking system have a positive and significant effect on economic growth in upper (middle) income LAC countries. The sign of the interaction term between remittances and the credit (and EFI) variables suggest that remittances act as substitutes for these variables. Finally, the effect of remittances on both sets of countries is stronger in the presence of a financial (credit) variable.

Keywords: Credit; Economic Freedom Index (EFI); FMOLS; Latin America & Caribbean; Remittances and Growth; Panel Cointegration; Panel Unit Roots (search for similar items in EconPapers)
JEL-codes: C22 O10 O40 O54 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2012-05
New Economics Papers: this item is included in nep-lam
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http://www3.trincoll.edu/repec/WorkingPapers2012/WP12-02.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Do Financial and Institutional Variables Enhance the Impact of Remittances on Economic Growth in Latin America and the Caribbean? A Panel Cointegration Analysis (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:tri:wpaper:1202

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