Remittances, Countercyclicality, Openness and Government Size

Christian Hubert Ebeke ()

No 2011044, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper investigates whether remittance inflows reduce the elasticity of government size with respect to trade openness. Put differently, the paper tests the hypothesis that there is a partial substitution between public insurance through government spending and a private insurance through remittances in more open countries. The insurance role of remittances is evaluated by computing annual panel data coefficients of remittance cyclicality with respect to the real GDP cycle. It appears that remittances have become more countercyclical during the end 1990s. Moreover, the trade openness, natural disasters, inflation and the shallowness nature of the financial system are among the main determinants of the countercyclicality of remittance inflows. From a simple theoretical model close to Rodrik (1998) and on the basis of econometric estimations using a large sample of developing countries (66), it appears that the positive impact of trade openness on government spending decreases with the level of remittances received. Moreover, it is when remittances are effectively countercyclical that the mechanism described here works.

Keywords: remittances; countercyclicality; openness; government consumption (search for similar items in EconPapers)
JEL-codes: E62 F24 O12 (search for similar items in EconPapers)
Pages: 26
Date: 2011-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Remittances, Countercyclicality, Openness and Government Size (2011)
Working Paper: Remittances, Countercyclicality, Openness, and Government Size (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2011044

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