IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in the Developing Countries: A Dynamic Heterogeneous Panel Analysis

  • Delwar Hossain
Registered author(s):

    The study examines the role of foreign capital and remittance inflows in the domestic savings of 63 developing countries for 1971-2010, paying attention to likely differential effects of FDI, portfolio investment, foreign aid and remittance. The conventional homogeneous panel estimates suggest that foreign aid and remittance flows have a significant negative impact on domestic savings. However, these techniques ignore cross section dependence and parameter heterogeneity properties and thus yield biased and inconsistent estimates. When we allow for parameter heterogeneity and cross sectional dependence by employing the Pesaran's (2006) Common Correlated Effects Mean Group estimator technique, only remittances crowd-out savings.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2014/wp_econ_2014_07.pdf
    Download Restriction: no

    Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2014-07.

    as
    in new window

    Length: 55 pages
    Date of creation: 2014
    Date of revision:
    Handle: RePEc:pas:papers:2014-07
    Contact details of provider: Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 2601
    Phone: +61 2 6125 4705
    Fax: +61 2 6125 5448
    Web page: https://crawford.anu.edu.au/acde/publications/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Durlauf,S.N. & Johnson,P.A. & Temple,J.R.W., 2004. "Growth econometrics," Working papers 18, Wisconsin Madison - Social Systems.
      • Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677 Elsevier.
    2. Corbo, Vittorio & Schmidt-Hebbel, Klaus, 1991. "Public policies and saving in developing countries," Policy Research Working Paper Series 574, The World Bank.
    3. Peter Pedroni, 2004. "Social Capital, Barriers to Production, and Capital Shares: Implications for the Importance of Parameter Heterogeneity from a Nonstationary Panel Approach," Department of Economics Working Papers 2004-03, Department of Economics, Williams College.
    4. Pesaran, M. Hashem & Smith, L. Vanessa & Yamagata, Takashi, 2007. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," IZA Discussion Papers 3254, Institute for the Study of Labor (IZA).
    5. repec:chb:bcchwp:03 is not listed on IDEAS
    6. Deaton, Angus S, 1977. "Involuntary Saving through Unanticipated Inflation," American Economic Review, American Economic Association, vol. 67(5), pages 899-910, December.
    7. Chudik, A. & Pesaran, M.H. & Tosetti, E., 2009. "Weak and Strong Cross Section Dependence and Estimation of Large Panels," Cambridge Working Papers in Economics 0924, Faculty of Economics, University of Cambridge.
    8. Francesco Moscone & Elisa Tosetti, 2009. "A Review And Comparison Of Tests Of Cross-Section Independence In Panels," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 528-561, 07.
    9. Gruben, William C. & McLeod, Darryl, 1998. "Capital Flows, Savings, and Growth in the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 1), pages 287-301.
    10. M. Hashem Pesaran & Takashi Yamagata, 2005. "Testing Slope Homogeneity in Large Panels," CESifo Working Paper Series 1438, CESifo Group Munich.
    11. Moscone, F. & Tosetti, E., 2010. "Testing for error cross section independence with an application to US health expenditure," Regional Science and Urban Economics, Elsevier, vol. 40(5), pages 283-291, September.
    12. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
    13. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
    14. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    15. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    16. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
    17. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
    18. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 1-90, Wharton School Rodney L. White Center for Financial Research.
    19. Shea, John, 1995. "Union Contracts and the Life-Cycle/Permanent-Income Hypothesis," American Economic Review, American Economic Association, vol. 85(1), pages 186-200, March.
    20. Haque, Nadeem U & Montiel, Peter, 1989. "Consumption in Developing Countries: Tests for Liquidity Constraintsand Finite Horizons," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 408-15, August.
    21. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
    22. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
    23. repec:fth:harver:1435 is not listed on IDEAS
    24. Georges Bresson & Badi H. Baltagi & Alain Pirotte, 2007. "Panel unit root tests and spatial dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 339-360.
    25. Bowles, Paul, 1987. "Foreign aid and domestic savings in less developed countries: Some tests for causality," World Development, Elsevier, vol. 15(6), pages 789-796, June.
    26. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
    27. Joakim Westerlund & David L. Edgerton, 2008. "A Simple Test for Cointegration in Dependent Panels with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(5), pages 665-704, October.
    28. Anselin, Luc & Moreno, Rosina, 2003. "Properties of tests for spatial error components," Regional Science and Urban Economics, Elsevier, vol. 33(5), pages 595-618, September.
    29. Giovannini, Alberto, 1985. "Saving and the real interest rate in LDCs," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 197-217, August.
    30. Ang, James, 2010. "Savings Mobilization, Financial Development and Liberalization: The Case of Malaysia," MPRA Paper 21718, University Library of Munich, Germany.
    31. Reinhart, Carmen & Talvi, Ernesto, 1998. "Capital flows and saving in Latin America and Asia: A reinterpretation," MPRA Paper 13704, University Library of Munich, Germany.
    32. Coakley, Jerry & Fuertes, Ana-Maria & Smith, Ron, 2006. "Unobserved heterogeneity in panel time series models," Computational Statistics & Data Analysis, Elsevier, vol. 50(9), pages 2361-2380, May.
    33. Osili, Una Okonkwo, 2007. "Remittances and savings from international migration: Theory and evidence using a matched sample," Journal of Development Economics, Elsevier, vol. 83(2), pages 446-465, July.
    34. Cavalcanti, Tiago V. de V. & Mohaddes, Kamiar & Raissi, Mehdi, 2011. "Growth, development and natural resources: New evidence using a heterogeneous panel analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 305-318.
    35. Yéro Baldé, 2011. "The impact of Remittances and Foreign Aid on Savings/Investment in Sub-Saharan Africa," Post-Print hal-00785220, HAL.
    36. Glytsos, Nicholas P, 1993. "Measuring the Income Effects of Migrant Remittances: A Methodological Approach Applied to Greece," Economic Development and Cultural Change, University of Chicago Press, vol. 42(1), pages 131-68, October.
    37. Jeffrey G. Williamson, 1968. "Personal Saving in Developing Nations: An Intertemporal Cross‐Section from Asia," The Economic Record, The Economic Society of Australia, vol. 44(2), pages 194-210, 06.
    38. Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-30, Jan.-Feb..
    39. Vasilis Sarafidis & Donald Robertson, 2009. "On the impact of error cross-sectional dependence in short dynamic panel estimation," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 62-81, 03.
    40. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
    41. Phillips, P C B & Durlauf, S N, 1986. "Multiple Time Series Regression with Integrated Processes," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 473-95, August.
    42. Peter C.B. Phillips & Donggyu Sul, 2004. "Bias in Dynamic Panel Estimation with Fixed Effects, Incidental Trends and Cross Section Dependence," Yale School of Management Working Papers ysm428, Yale School of Management.
    43. John Connell, 2000. "Migration and remittances in island microstates: a comparative perspective on the South Pacific and the Caribbean," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 24(1), pages 52-78, 03.
    44. repec:dgr:uvatin:20120144 is not listed on IDEAS
    45. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. " Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-89, September.
    46. Mikesell, Raymond F & Zinser, James E, 1973. "The Nature of the Savings Function in Developing Countries: A Survey of the Theoretical and Empirical Literature," Journal of Economic Literature, American Economic Association, vol. 11(1), pages 1-26, March.
    47. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
    48. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
    49. Luis René Cáceres & Nolvia Nery Saca, 2006. "What Do Remittances Do? Analyzing the Private Remittance Transmission Mechanism in El Salvador," IMF Working Papers 06/250, International Monetary Fund.
    50. Rafael E. De Hoyos & Vasilis Sarafidis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 482-496, December.
    51. Khaled A. Hussein & A.P. Thirlwall, 1999. "Explaining Differences in the Domestic Savings Ratio Across Countries: A Panel Data Study," Studies in Economics 9904, School of Economics, University of Kent.
    52. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security And Households' Saving," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1075-1119, August.
    53. Grinols, Earl & Bhagwati, Jagdish N, 1976. "Foreign Capital, Savings and Dependence," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 416-24, November.
    54. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    55. Chong, Alberto & Gradstein, Mark, 2008. "What determines foreign aid? The donors' perspective," Journal of Development Economics, Elsevier, vol. 87(1), pages 1-13, August.
    56. James Ang, 2009. "Household Saving Behaviour in an Extended Life Cycle Model: A Comparative Study of China and India," Journal of Development Studies, Taylor & Francis Journals, vol. 45(8), pages 1344-1359.
    57. T. De Groote & G. Everaert, 2011. "Common Correlated Effects Estimation of Dynamic Panels with Cross-Sectional Dependence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/723, Ghent University, Faculty of Economics and Business Administration.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:pas:papers:2014-07. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sandra Zec)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.