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Follow the Money: Remittance Responses to FDI Inflows

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  • Coon, Michael
  • Neumann, Rebecca

Abstract

This paper explores the relationship between foreign direct investment and remittance flows. Using a panel of 79 countries, we estimate a random effects model and find a positive and significant relationship between the two capital flows. We account for the potential endogeneity of FDI to remittances by utilize a two-stage Instrumental Variables approach. These findings are indicative of a desire among the emigrant community to invest their income earned abroad in their home countries. We also explore regional characteristics to examine whether this relationship differs across regions. Consequently, we find this effect to be particularly important for Sub-Saharan African (SSA) and Latin American and Caribbean (LAC) countries.

Suggested Citation

  • Coon, Michael & Neumann, Rebecca, 2015. "Follow the Money: Remittance Responses to FDI Inflows," MPRA Paper 62220, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62220
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    References listed on IDEAS

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    3. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
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    5. Miguel D. Ramirez & Hari Sharma, 2009. "Remittances and Growth in Latin America: A Panel Unit Root and Panel Cointegration Analysis," Estudios Economicos de Desarrollo Internacional, Euro-American Association of Economic Development, vol. 9(1).
    6. Dillon Alleyne & Claremont Kirton & Georgia McLeod & Mark Figueroa, 2008. "Short-run macroeconomic determinants of remittances to Jamaica: a time varying parameter approach," Applied Economics Letters, Taylor & Francis Journals, vol. 15(8), pages 629-634.
    7. Michael Coon, 2014. "Financial development and the end-use of migrants' remittances," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-25, December.
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    11. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
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    More about this item

    Keywords

    FDI flows; remittances; openness;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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