Do Remittances Reduce Aid Dependency?
AbstractAid has been for decades an important source of financing for developing countries, but more recently remittance flows have increased rapidly and are beginning to dwarf aid flows. This paper investigates how remittances affect aid flows, and how this relationship varies depending on the channel of transmission from remittances to aid. Buoyant remittances could reduce aid needs when human capital improves and private investment takes off. Absent these, aid flows could still drop as remittances may dampen donors' incentive to scale up aid. Concurrently, remittances could be positively associated with aid if migrants can influence aid policy in donor countries. Using an instrumental variable approach with panel data for a sample of developing countries from 1975-2005, the baseline results show that remittances actually increase aid dependency. However, a refined model controlling for the channels of transmission from remittances to aid reveals that remittances lead to lower aid dependency when they are invested in human and physical capital rather than consumed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 11/246.
Date of creation: 01 Oct 2011
Date of revision:
Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-DEV-2011-11-28 (Development)
- NEP-MIG-2011-11-28 (Economics of Human Migration)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dean Yang & HwaJung Choi, 2005.
"Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines,"
535, Research Seminar in International Economics, University of Michigan.
- HwaJung Choi, 2007. "Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines," World Bank Economic Review, World Bank Group, vol. 21(2), pages 219-248, May.
- Poirine, Bernard, 1997. "A theory of remittances as an implicit family loan arrangement," World Development, Elsevier, vol. 25(4), pages 589-611, January.
- Ramón López & Maurice Schiff, 1998. "Migration and the Skill composition of the Labor Force: The Impact of Trade Liberalization in LDCs," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 318-336, May.
- Ilahi, Nadeem & Jafarey, Saqib, 1999. "Guestworker migration, remittances and the extended family: evidence from Pakistan," Journal of Development Economics, Elsevier, vol. 58(2), pages 485-512, April.
- Berthelemy, Jean-Claude & Tichit, Ariane, 2004.
"Bilateral donors' aid allocation decisions--a three-dimensional panel analysis,"
International Review of Economics & Finance,
Elsevier, vol. 13(3), pages 253-274.
- Berthelemy, Jean-Claude & Tichit, Ariane, 2002. "Bilateral Donors' Aid Allocation Decisions: A Three-dimensional Panel Analysis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- Cox, Donald & Eser, Zekeriya & Jimenez, Emmanuel, 1998.
"Motives for private transfers over the life cycle: An analytical framework and evidence for Peru,"
Journal of Development Economics,
Elsevier, vol. 55(1), pages 57-80, February.
- Donald Cox & Zekeriya Eser & Emmanuel Jimenez, 1996. "Motives for Private Transfers over the Life Cycle: An Analytical Framework and Evidence for Peru," Boston College Working Papers in Economics 327., Boston College Department of Economics.
- McGillivray, Mark & Oczkowski, Edward, 1991. "Modelling the Allocation of Australian Bilateral Aid: A Two-Part Sample Selection Approach," The Economic Record, The Economic Society of Australia, vol. 67(197), pages 147-52, June.
- Schrooten, Mechthild, 2005. "Bringing home the money: what determines worker's remittances to transition countries?," Discussion Paper Series a466, Institute of Economic Research, Hitotsubashi University.
- Gertrud Schrieder & Beatrice Knerr, 2000. "Labour Migration as a Social Security Mechanism for Smallholder Households in Sub-Saharan Africa: The Case of Cameroon," Oxford Development Studies, Taylor & Francis Journals, vol. 28(2), pages 223-236.
- Guillaumont, Patrick & Laajaj, Rachid, 2006.
"When instability increases the effectiveness of aid projects,"
Policy Research Working Paper Series
4034, The World Bank.
- Rachid LAAJAJ & Patrick GUILLAUMONT, 2006. "When instability increases the effectiveness of aid projects," Working Papers 200637, CERDI.
- Patrick Guillaumont & Rachid Laajaj, 2011. "When instability increases the effectiveness of aid projects," Working Papers halshs-00557176, HAL.
- Acosta, Pablo & Fajnzylber, Pablo & Lopez, J. Humberto, 2007. "The impact of remittances on poverty and human capital : evidence from Latin American household surveys," Policy Research Working Paper Series 4247, The World Bank.
- Marta Ruiz-Arranz & Paola Giuliano, 2005.
"Remittances, Financial Development, and Growth,"
IMF Working Papers
05/234, International Monetary Fund.
- Samir Jahjah & Ralph Chami & Connel Fullenkamp, 2003.
"Are Immigrant Remittance Flows a Source of Capital for Development,"
IMF Working Papers
03/189, International Monetary Fund.
- Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
- Jacky Amprou & Patrick Guillaumont & Sylviane Guillaumont Jeanneney, 2007.
"Aid Selectivity According to Augmented Criteria,"
The World Economy,
Wiley Blackwell, vol. 30(5), pages 733-763, 05.
- Sylviane GUILLAUMONT JEANNENEY & Patrick GUILLAUMONT & Jacky AMPROU, 2006. "Aid Selectivity According to Augmented Criteria," Working Papers 200616, CERDI.
- Sylviane GUILLAUMONT JEANNENEY & Patrick GUILLAUMONT & Jacky AMPROU, 2005. "Aid Selectivity According to Augmented Criteria," Working Papers 200526, CERDI.
- Patrick Guillaumont & Sylviane Guillaumont Jeanneney & Jacky Amprou, 2011. "Aid Selectivity According to Augmented Criteria," Working Papers halshs-00562658, HAL.
- Gang, Ira N. & Lehman, James A., 1990. "New directions or not: USAID in Latin America," World Development, Elsevier, vol. 18(5), pages 723-732, May.
- Raju Jan Singh & Kyung-woo Lee & Markus Haacker, 2009.
"Determinants and Macroeconomic Impact of Remittances in Sub-Saharan Africa,"
IMF Working Papers
09/216, International Monetary Fund.
- Raju Jan Singh & Markus Haacker & Kyung-woo Lee & Ma�lan Le Goff, 2011. "Determinants and Macroeconomic Impact of Remittances in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 20(2), pages 312-340, March.
- Dean Yang, 2008.
"International Migration, Remittances and Household Investment: Evidence from Philippine Migrants' Exchange Rate Shocks,"
Royal Economic Society, vol. 118(528), pages 591-630, 04.
- Dean Yang, 2006. "International Migration, Remittances, and Household Investment: Evidence from Philippine Migrants' Exchange Rate Shocks," NBER Working Papers 12325, National Bureau of Economic Research, Inc.
- El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
- Cassen, Robert & ,, 1994. "Does Aid Work?: Report to an Intergovernmental Task Force," OUP Catalogue, Oxford University Press, edition 2, number 9780198773863.
- Gaytan-Fregoso, Helena & Lahiri, Sajal, 2000. "Foreign aid and illegal immigration," Journal of Development Economics, Elsevier, vol. 63(2), pages 515-527, December.
- Freund, Caroline & Spatafora, Nikola, 2005. "Remittances : transaction costs, determinants, and informal flows," Policy Research Working Paper Series 3704, The World Bank.
- Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
- Calero, C. & Bedi, A.S. & Sparrow, R.A., 2008.
"Remittances, liquidity constraints and human capital investments in Ecuador,"
ISS Working Papers - General Series
18735, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
- Calero, Carla & Bedi, Arjun S. & Sparrow, Robert, 2009. "Remittances, Liquidity Constraints and Human Capital Investments in Ecuador," World Development, Elsevier, vol. 37(6), pages 1143-1154, June.
- Calero, Carla & Bedi, Arjun S. & Sparrow, Robert, 2008. "Remittances, Liquidity Constraints and Human Capital Investments in Ecuador," IZA Discussion Papers 3358, Institute for the Study of Labor (IZA).
- Adams Jr., Richard H., 2009. "The Determinants of International Remittances in Developing Countries," World Development, Elsevier, vol. 37(1), pages 93-103, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).
If references are entirely missing, you can add them using this form.