Working Paper Series: Special Edition of 2016 to 2018 Interns

6. Concluding Remarks Do remittances affect per capita GDP growth in Latin American and Caribbean countries? Do the growth effects differ depending on the exchange rate regime that prevails? Are the differences significant in explaining remittances led growth effects? To bring light to these questions, this paper analysed the relationship between remittances and per capita GDP growth and how the impacts differ under a fix and floating exchange rate regime. The paper used a cross-section data series covering 32 of the 33 independent countries in Latin America and the Caribbean over the period 2000-2015 using four 4-year average periods. Applying the system GMM estimation technique which corrects for all forms of data auto-correlation, endogeneity issues and cross-panel heteroscedasticity, results show that remittances affects growth negatively in both fixed and floating exchange rate regimes. Results imply that the pure altruism theoretical framework is what motivate remittances inflow to the region, and because of the consumption nature of the recipients, this will lead to counter- cyclical growth effects. Further analysis of results tells us that in fixed exchange economies, a 1% increase in remittances will lead to a 3.7% decline in per capita GDP growth, while in floating exchange rate economies, a 1% increase in remittances will have a 5.2% decline in per capita GDP growth. After estimating GDP per capita growth models, it was found that growth regressors are most significant in fixed exchange regimes than in floating exchange regimes. The reason for this phenomenon, as was hypothesized, is that a greater uncertainty effect exists for the recipients of remittances in floating economies, versus those who dwell in fixed exchange rate economies. This uncertainty augments volatility in consumption and investment expectations, thus resulting in less developed institutions aimed at propelling growth and fostering development.

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