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

  • Ramirez, Miguel D.

    (Trinity College)

  • Sharma, Hari

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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Paper provided by Yale University, Department of Economics in its series Working Papers with number 51.

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Date of creation: Jun 2008
Date of revision:
Handle: RePEc:ecl:yaleco:51
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  14. Jesus Canas & Roberto Coronado & Pia M. Orrenius, 2007. "Explaining the increase in remittances to Mexico," Southwest Economy, Federal Reserve Bank of Dallas, issue Jul, pages 3-7.
  15. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
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  17. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances: Evidence from India," IMF Working Papers 05/224, International Monetary Fund.
  18. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
  19. 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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