Remittances and financial openness

Michel Beine*, Elisabetta Lodigiani, Robert Vermeulen

*Corresponding author for this work

Research output: Contribution to journalArticle

19 Citations (Scopus)

Abstract

Migrant remittances increased strongly since the 1980s, becoming an important and reliable source of funds for many developing countries. Therefore, there is a strong incentive for receiving countries to attract more remittances, especially through formal channels that turn out to be either less expensive and/or less risky than informal ones. One way of doing so is to increase their country's financial openness, but this policy option might also generate additional costs in terms of macroeconomic volatility. In this paper we investigate the link between remittance receipts and financial openness. We statistically test for the existence of such a relationship with a sample of 66 mostly developing countries from 1980-2005. Empirically we use a dynamic generalized ordered logit model to deal with the categorical nature of financial openness policy. We apply a two-step method akin to two stage least squares to deal with the endogeneity of remittances and potential measurement errors. We find a strong positive statistical and economic effect of remittances on financial openness.

Original languageEnglish
Pages (from-to)844-857
Number of pages14
JournalRegional Science and Urban Economics
Volume42
Issue number5
DOIs
Publication statusPublished - Sep 2012

Keywords

  • Financial openness
  • Government policy
  • Remittances

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