Do Remittance Flows Stabilize Developing Countries in the aftermath of Sovereign Defaults?

Immaculate Machasio (immaculate.n.machasio@wirtschaft.uni-giessen.de)
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Immaculate Machasio: University of Giessen

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: Remittances are transfers of money by foreign workers to their home countries.These remittance fl ows have been considered a very important source of finance for many developing countries accounting between 5-40% of the recipient country's GDP. This paper empirically examines whether remittance fl ows stabilize developing countries in the aftermath of sovereign defaults. To this end, we conduct Dynamic System Generalised Method of Moments (GMM) estimation techniques by Arellano and Bover (1995) and Blundell and Bond (1998) taking into account annual data cutting across 81 countries from 1990-2010. We find that indeed remittances play a significant role in stabilizing a country which has defaulted on its sovereign debt. The findings of this study exhibit different results for different measures of default episodes. All in all our findings confirm yet another channel through which remittances can have a positive in uence on recipient countries' economy since they support the hypothesis that the occurrence of a sovereign default spurs on an upsurge in remittances which play a stabilizing role.

Keywords: Remittances; Sovereign Defaults; Capital Flows; Generalised Methods of Moments (search for similar items in EconPapers)
JEL-codes: C23 F34 H63 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016
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Citations: View citations in EconPapers (1)

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