Working Paper Series: Special Edition of 2016 to 2018 Interns

Preliminary results revealed that GDP per capita has a very high persistence is positive and significant, while remittance estimates are negative and are statistically significant in both models. Population growth and final private consumption are negative and significant to current per capita GDP growth in the OLS model, while foreign direct investment is positively significant in the fixed effects model. 5.2 System GMM and Model’s Specifications Estimation results for the system GMM estimates can be seen in tables 6 and 7 (See Appendix), with only two variants of per capita GDP models assessed. Each model will show the impact that remittances have on log per capita GDP: i. In the whole region ii. For countries using a fixed exchange regime iii. For countries using a floating exchange regime iv. For the Latin American countries v. For the Caribbean countries. Given the objectives of the paper, emphasis will be placed on i – iii for analytical discussion . Table 6 gives results for the baseline model specification as highlighted in equation (3). A number of insignificant variables were obtained from model 1, hence a general to specification test 43 was carried out to incorporate only significant variables in model 2 (See Appendix Table 8). Results showed that the significant regressors were remittances, foreign direct investments, final private consumption and population growth. Therefore, model 2 was developed and took the form 44 : _ = 0 + 1 _ , −1 + 2 + 3 + 4 _ + 5 _ + 6 + (14) The forward orthogonal deviation technique in the system GMM estimator instead of the variable transformed first differencing technique. Hayakawa (2009) stated that the GMM estimator of models transformed by the forward orthogonal deviation tends to work better than those transformed using the differencing technique. Differencing the variables would imply losing

43 General specification test searches regression variables in a model and select the best model based upon a criterion of relevance or explanatory power. 44 Inflation was still incorporated in model 2, and time dummies were not incorporated due to their insignificance.

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