Determinants of international remittance inflow in Asia-Pacific middle-income countries

Abstract

The international remittances by immigrants to their home countries is one of the key sources of funding development in middle-income countries, especially in migrant-sending countries. This study assesses the determinants of international remittances using panel data from 22 Asia-Pacific middle-income countries, most of which are well-known migrant-sending countries, using the generalized method of moments (GMM) method. The results show that the gap in the per capita GDP growth rate between origin and destination countries, gross enrollment ratio of secondary education, and trade openness are positively associated with remittance inflow. On the other hand, net foreign direct investment (FDI) inflows are negatively correlated with remittance inflows. The results of this study can be interpreted as a paradigm shift for acquiring foreign capital in middle-income countries, from remittances in earlier stages of development to more FDI inflows when the country has the pre-requisites for absorbing foreign capital. The remittance inflows should be highly important, especially in the early stage of economic development, as additional incomes, or investment sources for those who live in middle-income countries.