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Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in the Developing Countries: A Dynamic Heterogeneous Panel Analysis

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  • Delwar Hossain
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    Abstract

    The study examines the role of foreign capital and remittance inflows in the domestic savings of 63 developing countries for 1971-2010, paying attention to likely differential effects of FDI, portfolio investment, foreign aid and remittance. The conventional homogeneous panel estimates suggest that foreign aid and remittance flows have a significant negative impact on domestic savings. However, these techniques ignore cross section dependence and parameter heterogeneity properties and thus yield biased and inconsistent estimates. When we allow for parameter heterogeneity and cross sectional dependence by employing the Pesaran's (2006) Common Correlated Effects Mean Group estimator technique, only remittances crowd-out savings.

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    Bibliographic Info

    Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2014-07.

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    Length: 55 pages
    Date of creation: 2014
    Date of revision:
    Handle: RePEc:pas:papers:2014-07

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    Keywords: Domestic savings; Foreign capital inflows; Foreign Aid. Models with panel data;

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