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Output Growth Volatility and Remittances

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  • MATTEO BUGAMELLI
  • FRANCESCO PATERNÒ

Abstract

Since output growth volatility has negative effects on growth, poverty and welfare, especially in poorer countries, it is crucial to identify the country-specific factors that affect it. The empirical literature has focused mostly on financial development, policy distortions and globalization variables. Among the latter, attention has been directed in particular to trade and financial openness. We contribute to this literature by adding what we see as the missing globalization variable, the one related to the increasingly important phenomenon of international migrations, namely emigrants' remittances. Remittances can help reduce output growth volatility thanks to their considerable magnitude, stability and low pro-cyclicality. Applying an empirical framework taken from the existing literature to a sample of about 60 emerging and developing economies over the period 1980-2003, we provide robust evidence that remittances are negatively correlated to output growth volatility. Instrumental variable estimation supports our intuition about the direction of causality.
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Suggested Citation

  • Matteo Bugamelli & Francesco Paternò, 2011. "Output Growth Volatility and Remittances," Economica, London School of Economics and Political Science, vol. 78(311), pages 480-500, July.
    • Handle: RePEc:bla:econom:v:78:y:2011:i:311:p:480-500
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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