Hostname: page-component-848d4c4894-2xdlg Total loading time: 0 Render date: 2024-06-23T06:16:17.807Z Has data issue: false hasContentIssue false
  • English
  • Français

Remittances, Countercyclicality, Openness and Government Size

Published online by Cambridge University Press:  09 January 2015

Christian Hubert Ebeke
Get access

Summary

This paper investigates whether remittance inflows reduce the elasticity of government size with respect to trade openness. Put differently, the paper tests the hypothesis that there is a partial substitution between public insurance through government spending and a private insurance through remittances in more open countries. The insurance role of remittances is evaluated by computing annual panel data coefficients of remittance cyclically with respect to the real GDP cycle. It appears that remittances have become more countercyclical during the end 1990s. Moreover, the trade openness, natural disasters, inflation and the shallowness nature of the financial system are among the main determinants of the countercyclicality of remittance inflows. From a simple theoretical model close to Rodrik (1998) and on the basis of econometric estimations using a large sample of developing countries (66), it appears that the positive impact of trade openness on government spending decreases with the level of remittances received. Moreover, it is when remittances are effectively countercyclical that the mechanism described here works.

Cet article examine l'impact des transferts des migrants sur les dépenses publiques dans les économies du monde en développement. Nous testons l'argument selon lequel, il s'opère une substitution partielle entre l'assurance publique et l'assurance privée qu'offrent les transferts des migrants dans les pays ouverts sur l'extérieur. La capacité des transferts des migrants à effectivement jouer ce rôle d'assurance contre les chocs, est évaluée en construisant des mesures de cyclicité des transferts des migrants vis-à-vis du PIB réel qui ont l'avantage de pouvoir varier par pays et par année et qui sont robustes à l'endogeneité potentielle du taux du PIB réel. Il apparaît que la contracycli-cité des transferts des migrants concerne à peu près la moitié des pays de l'échantillon et qu'elle s'est renforcée depuis la fin des années 1990. Par ailleurs, nos estimations économétriques montrent que l'ouverture commerciale, l'occurrence de catastrophes naturelles, le niveau d'inflation et les faibles niveaux de développement économique et financier sont des déterminants significatifs de la contracyclicité des transferts de migrants. Ensuite, sur la base d'un modèle théorique simple inspiré de Rodrik (1998) et d'estimations économétriques à partir d'un échantillon de 67 pays en développement, nous montrons d'une part que l'ouverture commerciale exerce bien une pression à la hausse des dépenses publiques et d'autre part, cet impact décroît avec le niveau de transferts des migrants reçus. Il apparaît en outre que c'est véritablement lorsque les transferts des migrants sont contracycliques qu'ils conduisent à une baisse de la consommation publique.

Keywords

Remittancescountercyclicalityopennessgovernment consumptionF24 E62 012Transferts des migrantsouvertureconsommation publiquecyclicitéF24E62012
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 77 , Issue 4 , December 2011 , pp. 89 - 114
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2011 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

International Monetary Fund, 700 19th Street, N.W., Washington DC 20431, USA, and Centre d'Études et de Recherches sur le Développement International (Cerdi), France. E-mail: Cebeke@imf.org. I would like to thank Prof. Jean-Louis Combes, the Editor of Louvain Economic Review and two anonymous referees for their insightful comments and suggestions. The views expressed in this paper are those of the author and should not be attributed to the institutions with which he is affiliated

References

Abdih, Y., Chami, R., Gapen, M. T. and Mati, A. (2009) Fiscal sustainability in remittance-dependent economies, IMF Working Papers 09/190, International Monetary Fund.Google Scholar
Abdih, Y., Dagher, J., Chami, R. and Montiel, P. (2008) Remittances and institutions: Are remittances a curse?, IMF Working Papers 08/29, International Monetary Fund.Google Scholar
Acosta, Pablo, Calderón, Cesar, Fajnzylber, Pablo, and López, J. Humberto. (2008). Do Remittances Lower Poverty Levels in Latin America? in Fajnzylber, P. and López, J. Humberto (eds.): Remittances and Development: Lessons from Latin America. The World Bank, Washington D.C. Google Scholar
Acosta, P. A., Baerg, N. R. and Mandelman, F. S. (2009) Financial development, remittances, and real exchange rate appreciation, Economic Review, pp. 1–12.Google Scholar
Aghion, P., Bacchetta, P., Ranciere, R. and Rogoff, K. (2009) Exchange rate volatility and productivity growth: the role of financial development, Journal of Monetary Economics, 56, 494–513.Google Scholar
Aghion, P. and Marinescu, I. (2008) Cyclical budgetary policy and economic growth: What do we learn from OECD panel data?, NBER Macroeconomics annual.Google Scholar
Amuedo-Dorantes, C. and Pozo, S. (2004) Workers' remittances and the real exchange rate: a paradox of gifts, World Development, 32, 1407–1417.Google Scholar
Bleaney, M. and Greenaway, D. (2001) The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa, Journal of development Economics, 65, 491–500.Google Scholar
Blundell, R. and Bond, S. (1998) Initial conditions and moment restrictions in dynamic panel data models, Journal of econometrics, 87, 115–143.Google Scholar
Bugamelli, M. and Paterno, F. (2009) Output growth volatility and remittances, Economica.Google Scholar
Catrinescu, N., Leon-Ledesma, M., Piracha, M. and Quillin, B. (2009) Remittances, Institutions, and Economic Growth, World Development, 37, 81–92.Google Scholar
Chami, R., Fullenkamp, C., Barajas, A., Montiel, P. and Gapen, M. T. (2009a) Do workers' remittances promote economic growth?, IMF Working Papers 09/153, International Monetary Fund.Google Scholar
Chami, R., Hakura, D. and Montiel, P. (2009b) Remittances: An automatic output stabilizer?, IMF Working Paper No. 09/91.Google Scholar
Collier, P. and Gunning, J. (1999) Trade shocks in developing countries, Oxford University Press.Google Scholar
Combes, J. L. and Ebeke, C. (2010) Remittances and household consumption instability in developing countries, World Development, forthcoming.Google Scholar
Combes, J. L. and Saadi-Sedik, T. (2006) How does trade openness influence budget deficits in developing countries?, The Journal of Development Studies, 42, 1401–1416.Google Scholar
David, A. (2010) How do international financial flows to developing countries respond to natural disasters?, IMF Working Papers 10/166, International Monetary Fund.Google Scholar
di Giovanni, J. and Levchenko, A. (2009) Trade openness and volatility, The Review of Economics and Statistics, 91, 558–585.Google Scholar
Dreher, A., Sturm, J. and Ursprung, H. (2008) The impact of globalization on the composition of government expenditures: Evidence from panel data, Public Choice, 134, 263–292.Google Scholar
Easterly, W., Islam, R. and Stiglitz, J. (2000) Explaining growth volatility, in Annual World Bank Conference on Development Economics 2000.Google Scholar
Ebeke, C. (2010) Remittances, value added tax and tax revenue in developing countries, CERDI Etudes et Documents, 2010:30.Google Scholar
Frankel, J. A. (2009) Are bilateral remittances countercyclical?, NBER Working Papers 15419, National Bureau of Economic Research, Inc.Google Scholar
Giuliano, P. and Ruiz-Arranz, M. (2009) Remittances, financial development, and growth, Journal of Development Economics, 90, 144–152.Google Scholar
Gupta, S., Pattillo, C. A. and Wagh, S. (2009) Effect of remittances on poverty and financial development in Sub-Saharan Africa, World Development, 37, 104–115.Google Scholar
Kapur, D. and Singer, D. (2006) Remittances and government spending, and the global Economy, in Annual Meeting, San Diego, CA.Google Scholar
Lueth, E. and Ruiz-Arranz, M. (2007) Are workers' remittances a hedge against macroeconomic shocks? The case of Sri Lanka, IMF Working Papers 07/22, International Monetary Fund.Google Scholar
Mendoza, E. (1997) Terms-of-trade uncertainty and economic growth, Journal of Development Economics, 54, 323–356.Google Scholar
Mohapatra, S., Joseph, G. and Ratha, D. (2009) Remittances and natural disasters: ex-post response and contribution to ex-ante preparedness, Policy Research Working Paper Series 4972, The World Bank.Google Scholar
Neagu, I. C. and Schiff, M. (2009) Remittance stability, cyclically and stabilizing impact in developing countries, Policy Research Working Paper Series 5077, The World Bank.Google Scholar
Pradhan, G., Upadhyay, M. and Upadhyaya, K. (2008) Remittances and economic growth in developing countries, The European Journal of Development Research, 20, 497–506.Google Scholar
Ratha, D. (2005) Workers' remittances: an important and stable source of external development finance, Remittances: Development Impact and Future Prospects, p. 19.Google Scholar
Rodrik, D. (1998) Why do more open economies have bigger governments?, Journal of Political Economy, 106, 997–1032.Google Scholar
Roodman, D. (2009) A Note on the Theme of Too Many Instruments, Oxford Bulletin of Economics and Statistics, 71, 135–158.Google Scholar
Sayan, S. (2006) Business cycles and workers' remittances: How do migrant workers respond to cyclical movements of GDP at home?, IMF Working Papers 06/52, International Monetary Fund.Google Scholar
Shahbaz, M., Rehman, J. and Hussain, W. (2008) Does Foreign Remittances Reduce Government Spending? Long and Short Run Phenomenon, International Research Journal of Finance and Economics, 14.Google Scholar
Staiger, D. and Stock, J. (1997) Instrumental variables regression with weak instruments, Econometrica: Journal of the Econometric Society, 65, 557–586.Google Scholar
Talvi, E. and Vegh, C. (2005) Tax base variability and procyclical fiscal policy in developing countries, Journal of Development Economics, 78, 156–190.Google Scholar
Tornell, A. and Lane, P. (1999) The voracity effect, American Economic Review, 89, 22–46.Google Scholar
Williams, A. (2009) On the release of information by governments: Causes and consequences, Journal of Development Economics, 89, 124–138.Google Scholar
Windmeijer, F. (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators, Journal of econometrics, 126, 25–51.Google Scholar
Yang, D. (2008) Coping with disaster: The impact of hurricanes on international financial flows, 1970-2002, Advances in Economic Analysis & Policy, 8, 1903–1903.Google Scholar