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Remittances and Institutions: Are Remittances a Curse?

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  • Abdih, Yasser
  • Chami, Ralph
  • Dagher, Jihad
  • Montiel, Peter

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.

Suggested Citation

  • Abdih, Yasser & Chami, Ralph & Dagher, Jihad & Montiel, Peter, 2012. "Remittances and Institutions: Are Remittances a Curse?," World Development, Elsevier, vol. 40(4), pages 657-666.
  • Handle: RePEc:eee:wdevel:v:40:y:2012:i:4:p:657-666
    DOI: 10.1016/j.worlddev.2011.09.014
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    More about this item

    Keywords

    remittances; institutions; corruption;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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