Remittances and Institutions: Are Remittances a Curse?

Jihad Dagher, Ralph Chami, Peter Montiel and Yasser Abdih

No 2008/029, IMF Working Papers from International Monetary Fund

Abstract: This paper addresses the complex and overlooked relationship between the receipt of workers' remittances and institutional quality in the recipient country. Using a simple model, we show how an increase in remittance inflows can lead to deterioration of institutional quality - specifically, to an increase in the share of funds diverted by the government for its own purposes. Empirical testing of this proposition is complicated by the likelihood of reverse causality. In a cross section of 111 countries we document a negative impact of the ratio of remittance inflows to GDP on domestic institutional quality, even after controlling for potential reverse causality. We find that a higher ratio of remittances to GDP is associated with lower indices of control of corruption, government effectiveness, and rule of law.

Keywords: WP; private income (search for similar items in EconPapers)
Pages: 31
Date: 2008-02-01
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Citations: View citations in EconPapers (47)

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Related works:
Journal Article: Remittances and Institutions: Are Remittances a Curse? (2012)
Working Paper: Remittances and Institutions: Are Remittances a Curse? (2010)
Working Paper: Remittances and Institutions: Are Remittances a Curse? (2010)
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