Follow the Money: Remittance Responses to FDI Inflows

Michael Coon and Rebecca Neumann

Journal of Globalization and Development, 2017, vol. 8, issue 2, 20

Abstract: Migrant networks are an important catalyst for promoting FDI flows between countries. Migrants also send increasingly large remittances to their home countries. This paper considers how these two capital flows are related, specifically examining how remittance flows respond to the amount of FDI inflows to a country. Using a panel of 118 countries over 1980–2010, we estimate a random effects model and find a positive and significant effect of FDI flows on remittances, while controlling for other standard determinants of remittance flows. We account for the potential endogeneity of FDI to remittances by utilizing a two-stage Instrumental Variables approach. These findings suggest that FDI complements remittances, rather than crowding out emigrant investment to the home countries. We find the relationship is strongest for low income countries, highlighting the importance of remittances as a source of investment capital in these countries.

Keywords: FDI flows; migrant networks; openness; remittances (search for similar items in EconPapers)
JEL-codes: F21 F23 F24 F35 F63 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Working Paper: Follow the Money: Remittance Responses to FDI Inflows (2015)
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DOI: 10.1515/jgd-2017-0023

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