Three essays on remittances and foreign aid to developing countries - a regional analysis
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Date
2014-04-17
Authors
Khan, Md. Syeed-Uz-Zaman
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Abstract
This dissertation consists of three essays. The first essay exploits a rich Longitudinal Survey on Immigrants to Canada (LSIC) dataset to determine the attributes that affect the probability of the incidence of remittances for a subsample of South East and Southern Asian immigrants. A logit regression model is used to address key motivations of the probability to remit by immigrants who live in Canada, with a particular focus on the immigrants' labour force participation and employment, education, housing, and living conditions. Results suggest that demographic, economic, and social factors are important for individuals in making decisions about remitting.
Two questions are answered in the second essay. First, is there any significant impact of foreign financial flows on economic growth? Second, are remittances and grants more effective than loans in promoting growth? To answer these questions, the Generalized Method of Movements (GMM) technique is employed for a panel of 46 developing countries from all regions of the world during 1979 to 2011. Results suggest that remittances are most effective for all regions in promoting economic growth. Results reveal that grant-aid is also significantly associated with economic growth, while the impact of concessional loans is found to be insignificant. The varied performance of different types of financial flows is perhaps due to the fact that the obligation to repay loans made them less lucrative an option for investment mobilization.
The third essay addresses the research question: “Does the exchange rate appreciate in the face of a voluminous remittances inflow?” To answer this question, the essay devises a mean group (MG) and pooled mean group (PMG) technique to investigate the exchange rate and remittance relationship for six South and South East Asian countries (Bangladesh, India, Pakistan, Philippines, Sri Lanka and Thailand). The essay reveals strong homogeneous currency appreciation that supports the ‘Dutch Disease’ theoretical framework. Remittances are also found to be significantly associated with the expansion of the non-tradable goods sector at the expense of the tradable goods sector (resource movement effect). The presence of ‘Dutch Disease’ calls for active policy intervention in the face of large increases in remittance receipts.
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Keywords
Remittances, Foreign Aid, Exchange rate, Developing Countries, Economic Growth