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

Author

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  • Immaculate Machasio

    (University of Giessen)

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.

Suggested Citation

  • Immaculate Machasio, 2016. "Do Remittance Flows Stabilize Developing Countries in the aftermath of Sovereign Defaults?," MAGKS Papers on Economics 201639, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201639
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    References listed on IDEAS

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    More about this item

    Keywords

    Remittances; Sovereign Defaults; Capital Flows; Generalised Methods of Moments;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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