Working Paper Series: Special Edition of 2016 to 2018 Interns

altruism is likely to result in more remittances being directed to poorer households, the self-interest motive is consistent with co-movement of the relative’s income. In terms of the specific relation with key macroeconomic variables, Ball, Lopez and Reyes (2012) identified the relationship that remittances have on GDP growth for fixed and floating exchange rate regimes. Remittances can influence growth they concurred. They postulated that remittances temporarily increase inflation, GDP and domestic money supply while appreciating the real exchange rate under fixed regime , but decrease inflation, increase GDP, appreciate real exchange rate and generate no change in the domestic money supply under a flexible regime . Barajas et al (2009) highlighted the fact that workers’ remittances represent one of the largest sources of financial flows to developing countries. In 2007, over $300 billion of workers’ remittances were transferred worldwide through official channels, and billions more were transferred through unofficial ones 30 . A supporting view came from Chami et al (2008), reporting that the average workers’ remittances to GDP for all developing countries over the period 1995- 2004 was 3.6%. On a country-by-country basis, workers’ remittances exceeded 1% of GDP (on average) for over 60 countries during this period, and seven of these countries had average workers’ remittances-GDP ratios amounting to 15% or higher. Empirical Strategy and Framework To explore the relationship between remittances and growth, Giuliano and Arranz (2009) used a sample consisting of 73 developing countries with annual data for the period 1975-2002. Following most empirical cross-country studies, they worked with a panel of five-year averages of all the variables and made their assessment using a panel-based data analysis technique using the econometric model presented below: = 0 + 1 , −1 + 2 + 3 + + + (1) Here, X it is a matrix of the usual growth accounting regressors. In the same paper, they made it clear that the panel OLS will not address the issues regarding endogeneity, so they corrected for this by taking advantage of the panel nature of the data using systems GMM regressors, following that of Arellano and Bover (1995). Their model was complimented and used by Mundaca (2005) II.

30 World Bank (2009)

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