FINANCING GROWTH: COMPARING THE EFFECTS OF FDI, ODA, AND INTERNATIONAL REMITTANCES
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The world-wide emergence of remittances, in conjunction with challenges surrounding public foreign aid and the theoretical division regarding the development of FDI, prompt important questions as to whether international remittances outperform foreign aid and FDI as a determinant of a country’s economic growth. Using panel data from 1990-2006 and applying System-Generalized Method of Moments (GMM) approach, we show that international remittances, FDI, and ODA are positively and significantly associated with the economic growth rate of low income countries. Specifically, we find that the impact is greater with international remittances. Moreover, international remittances prove to be a greater contributor of economic growth than ODA and FDI even when countries are highly dependent on FDI. We conclude by stressing the need for policy and business responses to stimulate the flow and create an appropriate distribution of international remittances to make full use of international remittances developmental potential.
Abstract
The world-wide emergence of remittances, in conjunction with challenges surrounding public foreign aid and the theoretical division regarding the development of FDI, prompt important questions as to whether international remittances outperform foreign aid and FDI as a determinant of a country’s economic growth. Using panel data from 1990-2006 and applying System-Generalized Method of Moments (GMM) approach, we show that international remittances, FDI, and ODA are positively and significantly associated with the economic growth rate of low income countries. Specifically, we find that the impact is greater with international remittances. Moreover, international remittances prove to be a greater contributor of economic growth than ODA and FDI even when countries are highly dependent on FDI. We conclude by stressing the need for policy and business responses to stimulate the flow and create an appropriate distribution of international remittances to make full use of international remittances developmental potential.
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