Remittances as an Economic Development Factor. Empirical Evidence from the CEE Countries

Abstract

Empirical studies on remittances revealed their key role for the household consumption of the receiving families, as well as their investment potential with direct influence on economic development in emigrant's country of origin. This paper focuses on the second approach by treating remittances as capital flows that have macroeconomic growth potential. Aiming to test this hypothesis, we constructed a two growth models that include remittances as the variable of interest, alongside the traditional production factors. The models have been tested using aggregate data that cover ten countries in Central and Eastern Europe (CEE) over 1995-2011. Panel estimation methods were employed to account for potential cross-section heterogeneity. The main result is the significant positive influence of remittances on both absolute and relative GDP growth in our panel of CEE countries.