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Remittances and Growth in Latin America: A Panel Unit Root and Panel Cointegration Analysis

  • Miguel D. Ramirez
  • Hari Sharma

Using recently developed panel unit root and panel cointegration tests and the Fully-Modified OLS (FMOLS) methodology, this paper estimates the impact of remittances on the economic growth of selected upper and lower income Latin American & Caribbean countries. Despite a large flow of remittances to the region, there have been relatively few empirical studies assessing the impact of remittances on growth in Latin American and the Caribbean. Panel unit root tests suggests that several of the macro variables included in the model exhibit unit roots, yet, at the same time, Pedroni’s panel cointegration methodology determined that there is a cointegrating relationship among the variables in the estimated model. Moreover, FMOLS estimates suggest that remittances have a positive and significant effect on economic growth in both groups of countries. The interaction of remittances with a financial development variable revealed that these two variables act as substitutes and, moreover, that the impact of remittances is more pronounced in the presence of the financial development variable.

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Article provided by Euro-American Association of Economic Development in its journal Estudios Economicos de Desarrollo Internacional.

Volume (Year): 9 (2009)
Issue (Month): 1 ()
Pages:

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Handle: RePEc:eaa:eedein:v:9:y2009:i:9_1
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  1. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
  2. Marta Ruiz-Arranz & Paola Giuliano, 2005. "Remittances, Financial Development, and Growth," IMF Working Papers 05/234, International Monetary Fund.
  3. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
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  9. Lykke E. Andersen & Bent Jesper Christensen & Oscar Molina, 2005. "The Impact of Aid on Recipient Behavior: A Micro-Level Dynamic Analysis of Remittances, Schooling, Work, Consumption, Investment and Social Mobility in Nicaragua," Development Research Working Paper Series 02/2005, Institute for Advanced Development Studies.
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  14. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
  15. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
  16. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances; Evidence From India," IMF Working Papers 05/224, International Monetary Fund.
  17. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
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