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Remittances and Financial Openness

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  • Michel Beine
  • Elisabetta Lodigiani
  • Robert Vermeulen

Abstract

Remittances have greatly increased during recent years, becoming an important and reliable source of funds for many developing countries. Therefore, there is a strong incentive for receiving countries to attract more remittances, especially through formal channels that turn to be either less expensive or less risky. One way of doing so is to increase their financial openness, but this policy option might generate additional costs in terms of macroeconomic volatility. In this paper we investigate the link between remittance receipts and financial openness. We develop a small model and statistically test for the existence of such a relationship with a sample of 66 mostly developing countries from 1980-2005. Empirically we use a dynamic generalized ordered logit model to deal with the categorical nature of the financial openness policy. We apply a two-step method akin to two stage least squares to deal with the endogeneity of remittances and potential measurement errors. We find a strong positive statistical and economic effect of remittances on financial openness.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3090.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3090

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Keywords: remittances; financial openness; government policy;

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References

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Cited by:
  1. Michael Funke & Yu-Fu Chen, 2010. "Global warming and extreme events: Rethinking the timing and intensity of environment policy," Quantitative Macroeconomics Working Papers 21007b, Hamburg University, Department of Economics.
  2. Anneke Kosse & Robert Vermeulen, 2013. "Migrants' Choice of Remittance Channel: Do General Payment Habits Play a Role?," DNB Working Papers 375, Netherlands Central Bank, Research Department.
  3. Jesús Crespo Cuaresma & Martin Feldkircher, 2012. "Drivers of Output Loss during the 2008–09 Crisis: A Focus on Emerging Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 46-64.
  4. Michel Beine & Elisabetta Lodigiani & Robert Vermeulen, 2011. "Remittances and Financial Openness," DNB Working Papers 317, Netherlands Central Bank, Research Department.
  5. Bertoli, Simone & Fernández-Huertas Moraga, Jesús, 2012. "Visa Policies, Networks and the Cliff at the Border," IZA Discussion Papers 7094, Institute for the Study of Labor (IZA).
  6. Vincent Bodart & Bertrand Candelon & Jean-François Carpantier, 2013. "Real exchange rates, commodity prices and structural factors in developing countries," CREA Discussion Paper Series 13-09, Center for Research in Economic Analysis, University of Luxembourg.
  7. Josef Schreiner, 2012. "Developments in Selected CESEE Countries: Heterogeneous Growth Performance, Improving Fiscal and External Accounts," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 8-37.
  8. Adolfo Barajas & Ralph Chami & Christian Ebeke & Sampawende J.-A. Tapsoba, 2012. "Workers’ Remittances," IMF Working Papers 12/251, International Monetary Fund.

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