Econometric Approach of the Nexus between Remittances and Economic Growth in Western Balkans

Abstract

Purpose: The purpose of this research paper is to highlight the importance of remittances in the economic development of a country, with special emphasis in Western Balkan countries. Design/Methodology/Approach: This paper is based on the study of theoretical issues, OLS model, fixed (FE) and random (RE) effect model. In addition Hausman test has been applied to determine the appropriate model among Fixed and Random effects. Revealing the results of the Hausman test the Random effect model is considered as the appropriate model, and it implies the existence of positive and significant relationship between remittances and GDP per capita growth in the Western Balkan countries for the time period 2000 - 2018. Findings: Results based in OLS model findings reveal a positive relationship between remittances and GDP per capita growth. Also the results of the random and fixed effect model reveal positive and significant effect of remittances on the economic growth, thus by increasing remittances the GDP per capita will increase. The results also present that Gross Fixed Capital Formation has a positive impact on the economic growth, where by increasing Gross Fixed Capital Formation, the GDP per capita will increase. Practical Implications: The results of this research are supportive regarding the relationship between remittances and economic growth, yet will contribute to the existing literature as well as for further policy recommendations by the Western Balkan countries. Originality/Value: This research paper is an empirical analysis based on the data provided by the World Bank, for the time period 2000-2018.