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

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  • Delwar Hossain

Abstract

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.

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  • Delwar Hossain, 2014. "Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in the Developing Countries: A Dynamic Heterogeneous Panel Analysis," Departmental Working Papers 2014-07, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2014-07
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    Cited by:

    1. Gloria Clarissa O. Dzeha, 2016. "The decipher, theory or empirics: a review of remittance studies," African Journal of Accounting, Auditing and Finance, Inderscience Enterprises Ltd, vol. 5(2), pages 113-134.
    2. repec:eaa:aeinde:v:17:y:2017:i:1_2 is not listed on IDEAS

    More about this item

    Keywords

    Domestic savings; Foreign capital inflows; Foreign Aid. Models with panel data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F35 - International Economics - - International Finance - - - Foreign Aid

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