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Remittances, Countercyclicality, Openness, and Government Size

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  • Christian Hubert Ebeke

    () (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates whether remittance inflows reduce the elasticity of government size with respect to trade openness. Put differently, the paper tests the hypothesis that there is a partial substitution between public insurance through government spending and a private insurance through remittances in more open countries. The insurance role of remittances is evaluated by computing annual panel data coefficients of remittance cyclicality with respect to the real GDP cycle. It appears that remittances have become more countercyclical during the end 1990s. Moreover, the trade openness, natural disasters, inflation and the shallowness nature of the financial system are among the main determinants of the countercyclicality of remittance inflows. From a simple theoretical model close to Rodrik (1998) and on the basis of econometric estimations using a large sample of developing countries (66), it appears that the positive impact of trade openness on government spending decreases with the level of remittances received. Moreover, it is when remittances are effectively countercyclical that the mechanism described here works.
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Suggested Citation

  • Christian Hubert Ebeke, 2011. "Remittances, Countercyclicality, Openness, and Government Size," Post-Print halshs-00666953, HAL.
  • Handle: RePEc:hal:journl:halshs-00666953
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00666953
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    References listed on IDEAS

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    Cited by:

    1. Adolfo Barajas & Ralph Chami & Christian H Ebeke & Sampawende J Tapsoba, 2012. "Workers’ Remittances; An Overlooked Channel of International Business Cycle Transmission?," IMF Working Papers 12/251, International Monetary Fund.
    2. Combes, Jean-Louis & Ebeke, Christian Hubert & Etoundi, Sabine Mireille Ntsama & Yogo, Thierry Urbain, 2014. "Are Remittances and Foreign Aid a Hedge Against Food Price Shocks in Developing Countries?," World Development, Elsevier, vol. 54(C), pages 81-98.
    3. Meseguer, Covadonga & Lavezzolo, Sebastián & Aparicio, Javier, 2016. "Financial remittances, trans-border conversations, and the state," LSE Research Online Documents on Economics 68273, London School of Economics and Political Science, LSE Library.
    4. Durga P. Gautam, 2014. "Remittances and Governance: Does the Government Free Ride?," Working Papers 14-40, Department of Economics, West Virginia University.
    5. International Monetary Fund, 2012. "Are Foreign Aid and Remittance Inflows a Hedge Against Food Price Shocks?," IMF Working Papers 12/67, International Monetary Fund.

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    Keywords

    cerdi;

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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