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Follow the Money: Remittance Responses to FDI Inflows

Author

Listed:
  • Coon Michael

    (Sykes College of Business, University of Tampa, Tampa, FL, USA)

  • Neumann Rebecca

    (Economics Department, University of Wisconsin – Milwaukee, Milwaukee, WI 53201, USA)

Abstract

Migrant networks are an important catalyst for promoting FDI flows between countries. Migrants also send increasingly large remittances to their home countries. This paper considers how these two capital flows are related, specifically examining how remittance flows respond to the amount of FDI inflows to a country. Using a panel of 118 countries over 1980–2010, we estimate a random effects model and find a positive and significant effect of FDI flows on remittances, while controlling for other standard determinants of remittance flows. We account for the potential endogeneity of FDI to remittances by utilizing a two-stage Instrumental Variables approach. These findings suggest that FDI complements remittances, rather than crowding out emigrant investment to the home countries. We find the relationship is strongest for low income countries, highlighting the importance of remittances as a source of investment capital in these countries.

Suggested Citation

  • 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.
  • Handle: RePEc:bpj:globdv:v:8:y:2018:i:2:p:20:n:4
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    References listed on IDEAS

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    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
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    More about this item

    Keywords

    FDI flows; migrant networks; openness; remittances;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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