Remittances and Institutions: Are remittances a curse?
(joint with Yasser Abdih, Ralph Chami and Peter
Montiel )
This paper addresses the overlooked relationship between the receipt of workers' remittances and institutional quality in the recipient country. Since remittances are a prominent, relatively stable and non-taxable external source of funding for households, we argue that they might affect the incentives faced by the recipient country government in its provision of public services. We show in a simple model featuring private substitutes for public services how an increase in remittances can lead to an increase in the share of funds diverted by the government for its own purposes. In a cross section of 111 countries we document a negative relationship between the ratio of remittance inflows to GDP and domestic institutional quality. In particular, we find that higher ratios of remittances to GDP lead on average to lower indices of control of corruption, government effectiveness and rule of law. We use a new instrument for remittances to control for endogeneity.
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|
(1) |
(2) |
(3) |
(4) |
(5) |
|
|
Control
of Corruption |
Government.
Effectiveness |
Rule
of Law |
Regulatory
Burden |
Accountability |
|
|
|
|
|
|
|
|
Remittances |
-0.120** |
-0.119** |
-0.102** |
-0.0185 |
0.0179 |
|
|
(-2.20) |
(-2.14) |
(-2.03) |
(-0.44) |
(0.35) |
|
|
|
|
|
|
|
|
Ethnic |
-0.638 |
-0.611 |
-0.547 |
-0.313 |
0.0117 |
|
|
(-1.43) |
(-1.35) |
(-1.33) |
(-0.90) |
(0.03) |
|
|
|
|
|
|
|
|
Catholic |
-0.0111*** |
-0.00344 |
-0.00606 |
0.00179 |
-0.00550 |
|
|
(-2.58) |
(-0.79) |
(-1.49) |
(0.52) |
(-1.38) |
|
|
|
|
|
|
|
|
Muslim |
-0.00677 |
0.00148 |
-0.000479 |
-0.0000600 |
-0.0135*** |
|
|
(-1.43) |
(0.31) |
(-0.11) |
(-0.02) |
(-3.07) |
|
|
|
|
|
|
|
|
Other non protestant |
-0.00681 |
-0.000610 |
0.000380 |
0.00177 |
-0.00272 |
|
|
(-1.43) |
(-0.13) |
(0.08) |
(0.45) |
(-0.61) |
|
|
|
|
|
|
|
|
Energy |
-0.0368*** |
-0.0289** |
-0.0305*** |
-0.0202** |
-0.0220* |
|
|
(-2.96) |
(-2.28) |
(-2.62) |
(-2.07) |
(-1.90) |
|
|
|
|
|
|
|
|
Rgdp |
0.378*** |
0.407*** |
0.446*** |
0.279*** |
0.310*** |
|
|
(5.21) |
(5.52) |
(6.53) |
(4.88) |
(4.60) |
|
|
|
|
|
|
|
|
Constant |
-1.426* |
-2.295*** |
-2.606*** |
-1.807*** |
-1.600** |
|
|
(-1.74) |
(-2.75) |
(-3.37) |
(-2.79) |
(-2.10) |
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|
|
|
|
|
|
|
R2 |
0.621 |
0.587 |
0.643 |
0.564 |
0.613 |
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|
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|
t statistics in parentheses |
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* p<0.10, **
p<0.05, *** p<0.01 |
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|
2SLS regressions
where the IV is the coastal area- showing the regressions for different
institutional measures. Complete definitions of these measures are found
in Table 10, Appendix B. |
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Table taken from the paper. Using another instrument for remittances yields a similar picture. See paper.