Abstract
In our paper, we analyse the long-term stability and impact of remittances and development aid on sustainable economic growth in developing countries. We use two data samples from countries that were recipients of both aid and remittances in the corresponding period. First, unbalanced data from the years 1970 to 2017; that is, how countries appear in the data. Second, balanced data, where we selected the largest possible set of countries for which data exists without gaps from the years 1970–2017. This dataset consists of 57 countries for the period from 1991 to 2017. Using linear regression models, we conclude that up until the end of the 1980s, the size of aid as a share of gross domestic product (GDP) was larger than the share of remittances. After that, the situation changed and the shares of both inflows were broadly similar. The inflow of remittances was more stable than the inflow of aid and development aid did not (on the contrary to remittances) contribute positively to sustainable economic growth if we consider the entire period between 1970 and 2017. Our results suggest that a statistically significant relationship between development aid and economic growth (per capita) may be observed only in the period from 1990 to 1999. Economic growth in developing countries is negatively influenced by the uncertainty related to the flows of official development assistance (ODA) and aid in all investigated decades. In the case of the remittance flows, the increased volatility tends to contribute negatively to sustainable economic growth only when the remittance flows represent a relatively higher share of GDP.
Highlights
Over the past few decades, workers’ remittances have grown to become one of the largest sources of financial flows to developing countries, often dwarfing other widely studied sources such as private capital and official aid flows [1]
We investigate the relationships between long-term economic growth and the set of the core controlling variables consisting of the average shares of remittances and official development assistance (ODA), the indicators of volatility and the corresponding interactions terms
The trends in remittances tend to be more stable than trends in development aid and may be considered as a more important factor that contributes to sustainable economic development
Summary
Over the past few decades, workers’ remittances have grown to become one of the largest sources of financial flows to developing countries (defined as low income and middle-income economies), often dwarfing other widely studied sources such as private capital and official aid flows [1]. Among other things, the absolute growth of international migrants to industrialised countries [2,3], an increasing amount of remittances in the last two decades [4,5] and their impacts on growth [6,7,8,9,10]. Many authors focused on questions dealing with the contribution of development aid to economic growth, poverty reduction and migration from developing countries [11,12,13,14]. Some authors focus on the impact of sustainable social and economic development in less-developed migrant-sending countries on migrant flows from those countries to developed countries [15] and the problems related to the ageing population in Europe and other developed countries. Disillusion from the small effectiveness of traditional development tools such as development aid for more than the last six decades and other financial flows such as foreign direct investments are factors, among others
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