Remittances and Foreign Aid: Substitutes or Complements in the Economic Growth of Developing Countries?

Temitope J. Laniran and Victoria A. Olakunle
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Temitope J. Laniran: Research Associate John and Elnora Ferguson Centre for African Studies, University of Bradford, and Centre for Petroleum, Energy Economics and Law, University of Ibadan, Ibadan, Nigeria
Victoria A. Olakunle: School of Economics, The University of Nottingham, Nottingham, United Kingdom

Economia Internazionale / International Economics, 2019, vol. 72, issue 1, 23-46

Abstract: Existing literature posits that there is an association between foreign aid and growth; however, the robustness of this relationship is often questioned. A similar lack of consensus exists on the relationship between remittances and growth. Given the significant outlays of foreign aid and remittances to developing countries, this study is motivated by the objective of investigating which of these transfers has the greater impact on growth. Employing panel data of 77 developing countries over the 1995-2011 periods using Systems GMM, the results suggest a substitutable relationship and not complementary between aid and remittances implying that the presence of remittance reduces the amount of aid allocated to a country and also its relative growth-impact. Rimesse ed aiuti dall’estero: sostituti o complementari nella crescita economica dei paesi in via di sviluppo? Secondo la letteratura esistente si ritiene vi sia una relazione tra aiuti esteri e crescita, ma la robustezza di tale relazione è stata più volte messa in discussione. Analogo dissenso sussiste sulla relazione rimesse/crescita. Dati i significativi importi degli aiuti esteri e delle rimesse verso i paesi in via di sviluppo, questo studio origina dalla necessità di analizzare quali di questi trasferimenti ha l’impatto maggiore sulla crescita. Tramite l’utilizzo del metodo System GMM su un campione di 77 paesi in via di sviluppo nel periodo 1995-2011, i risultati suggeriscono che esiste una relazione sostitutiva e non complementare tra aiuti e rimesse, con l’implicazione che la presenza di rimesse riduce l’ammontare degli aiuti destinati ad un paese ed anche il relativo impatto sulla crescita.

Keywords: Foreign Aid; Remittances; Economic Growth (search for similar items in EconPapers)
JEL-codes: F24 F35 O41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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