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Do remittances really attract foreign direct investments? Evidence from panel cointegration

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  • Mercy Laita PALAMULENI

    (College of Business, McNeese State University, Lake Charles, USA)

Abstract

This paper examines the long-run relationship between remittance inflows and Foreign Direct Investments (FDI) for 47 developing countries over the period 1980-2014. Panel cointegration techniques that are robust to omitted variable bias, slope heterogeneity and crosssectional dependency are employed. The main results are that remittance flows have some small but positive effects on FDI; however, the results vary by both region and country. Specifically, the positive relationship strongly holds in African countries and high remittance recipient countries but not for Asian and Latin American countries. The causality test suggests that the relationship is bidirectional. These results have important policy implications to developing countries. For example they suggest that policies aimed at increasing remittance inflows also attracts more FDI in some countries and also that remittance inflows be viewed as being both a cause and a consequence of FDI.

Suggested Citation

  • Mercy Laita PALAMULENI, 2018. "Do remittances really attract foreign direct investments? Evidence from panel cointegration," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(617), W), pages 221-234, Winter.
  • Handle: RePEc:agr:journl:v:4(617):y:2018:i:4(617):p:221-234
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    References listed on IDEAS

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    1. Adams Jr., Richard H. & Cuecuecha, Alfredo, 2010. "Remittances, Household Expenditure and Investment in Guatemala," World Development, Elsevier, vol. 38(11), pages 1626-1641, November.
    2. Pandej Chintrakarn & Dierk Herzer & Peter Nunnenkamp, 2012. "Fdi And Income Inequality: Evidence From A Panel Of U.S. States," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 788-801, July.
    3. repec:bpj:globdv:v:8:y:2018:i:2:p:20:n:4 is not listed on IDEAS
    4. Dierk Herzer & Philipp Hühne & Peter Nunnenkamp, 2014. "FDI and Income Inequality—Evidence from Latin American Economies," Review of Development Economics, Wiley Blackwell, vol. 18(4), pages 778-793, November.
    5. Coon Michael & Neumann Rebecca, 2017. "Follow the Money: Remittance Responses to FDI Inflows," Journal of Globalization and Development, De Gruyter, vol. 8(2), pages 1-20, December.
    6. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
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    Keywords

    Remittance; FDI; Panel cointegration.;

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