Remittances and economic growth in developing Asia and the Pacific countries

Abstract

Over the past three decades, remittance inflows have increasing dramatically and become the main source of foreign exchange both in absolute terms and as a percentage of GDP in many developing countries. However, the growth effect of remittance is still not well understood. This study attempts to investigate the impact of remittance inflows on economic growth in developing Asia and the Pacific countries. Moreover, it examines whether remittances can effect on the impact of labor and capital on growth in remittance-receiving countries. The study uses a balanced panel data on remittance flows to 25 developing countries in Asia and the Pacific for the period 2000-2012. Endogeneity problem is controlled by system GMM estimator. The results find no evidence suggesting the significant relationship between remittances and growth when remittance is considered as an explanatory variable in a standard growth regression. Taking into account interaction terms, this paper comes to conclusion while population growth and remittances is complementary, human capital development and remittances are used as substitutes to promote growth.