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Follow the Money: Remittance Responses to FDI Inflows

Follow the Money: Remittance Responses to FDI Inflows AbstractMigrant networks are an important catalyst for promoting FDI flows between countries. Migrants also send increasingly large remittances to their home countries. This paper considers how these two capital flows are related, specifically examining how remittance flows respond to the amount of FDI inflows to a country. Using a panel of 118 countries over 1980–2010, we estimate a random effects model and find a positive and significant effect of FDI flows on remittances, while controlling for other standard determinants of remittance flows. We account for the potential endogeneity of FDI to remittances by utilizing a two-stage Instrumental Variables approach. These findings suggest that FDI complements remittances, rather than crowding out emigrant investment to the home countries. We find the relationship is strongest for low income countries, highlighting the importance of remittances as a source of investment capital in these countries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Globalization and Development de Gruyter

Follow the Money: Remittance Responses to FDI Inflows

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Publisher
de Gruyter
Copyright
©2017 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1948-1837
eISSN
1948-1837
DOI
10.1515/jgd-2017-0023
Publisher site
See Article on Publisher Site

Abstract

AbstractMigrant networks are an important catalyst for promoting FDI flows between countries. Migrants also send increasingly large remittances to their home countries. This paper considers how these two capital flows are related, specifically examining how remittance flows respond to the amount of FDI inflows to a country. Using a panel of 118 countries over 1980–2010, we estimate a random effects model and find a positive and significant effect of FDI flows on remittances, while controlling for other standard determinants of remittance flows. We account for the potential endogeneity of FDI to remittances by utilizing a two-stage Instrumental Variables approach. These findings suggest that FDI complements remittances, rather than crowding out emigrant investment to the home countries. We find the relationship is strongest for low income countries, highlighting the importance of remittances as a source of investment capital in these countries.

Journal

Journal of Globalization and Development – de Gruyter

Published: May 18, 2018

References

  • Inward FDI, Remittances and Out-Migration
  • Foreign Direct Investment as a Catalyst for Industrial Development
  • Are Immigrant Remittance Flows a Source of Capital for Development?
  • FDI, Foreign Aid, Remittance and Economic Growth in Developing Countries