Do Remittances Crowd-In or Crowd-Out Domestic Investment? An Empirical Analysis of 24 Low-Income Countries

Ranjan Kumar Dash ()
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Ranjan Kumar Dash: Symbiosis International University

Journal of the Knowledge Economy, 2023, vol. 14, issue 2, No 26, 1177-1193

Abstract: Abstract International migration not only provides external capital in the form of remittances, but also has many positive externalities – such as trade creation, financial development, skill development, technology diffusion, productivity enhancement, and capital accumulation – for low-income countries. In this context, this paper examines whether remittances crowd in or crowd out domestic investment using data from 24 low-income countries over the period 2004–2018. Using second-generation panel methodology that accounts for endogeneity problem and cross-section dependency among countries, the study finds that remittances crowd in domestic investment in the long run. The results further suggest that the crowding in effect is more pronounced in countries with more developed financial systems and higher human capital levels. The results from the panel causality test also support the crowding in hypothesis as there seems to be mutual feedback effect between the two. Thus, the empirical analysis in the study posits that remittances play a critical role in economic development by promoting domestic investment in the recipient countries.

Keywords: Investment; Remittances; Crowd-in; Crowd out and LICs (search for similar items in EconPapers)
JEL-codes: E22 F21 F30 O52 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s13132-022-00948-5

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