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Remittances and Institutions: Are Remittances a Curse?

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Abstract

This paper addresses the complex and overlooked relationship between the receipt of workers’ remittances and institutional quality in the recipient country. Using a simple model, we show how an increase in remittance inflows can lead to deterioration of institutional quality – specifically, to an increase in the share of funds diverted by the government for its own purposes. In a cross section of 111 countries we empirically verify this proposition and find that a higher ratio of remittances to GDP leads to lower indices of control of corruption, government effectiveness, and rule of law, even after controlling for potential reverse causality.

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File URL: http://web.williams.edu/Economics/wp/MontielRemittancesAndInstitutions.pdf
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Bibliographic Info

Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2010-13.

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Length: 27 pages
Date of creation: Jul 2010
Date of revision:
Publication status: Forthcoming in World Development
Handle: RePEc:wil:wileco:2010-13

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Keywords: Remittances; Institutions; Corruption;

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