Abstract
Proper understanding and monitoring of household savings are crucial to effective macroeconomic policies targeted at balanced and sustainable economic growth. Remittances, as a financial flow of foreign capital, can create a vital part of private savings. This paper is aimed at identifying whether remittances contribute to household savings in the Baltics along with other macroeconomic variables in a post-crisis period, during which the relative smoothing and convergence of economic development of the Baltic countries after the sharp financial distress in 2009 can be observed. The following methods of panel data regression analysis were employed: fixed effects and OLS. The results of the econometric analysis based on both fixed effects and OLS methods reveal that remittances are an essential driver of savings in the Baltics in the long run. Savings in the Baltics are not significantly influenced in the short term by sharp economic fluctuations, but are dependent on demographic factors and foreign capital, which can bring instability in economic development and financial flows of the region. AcknowledgmentThis research was funded by Vega research project no. 1/0037/20: “New challenges and solutions for employment growth in changing socio-economic conditions”, and VEGA research project no. 1/0287/19 “Integration of immigrants in EU countries from the point of view of migration policies”.
Highlights
Remittances account for a significant part of foreign capital flows in developing countries
Remittances appear to be less volatile than other types of financial flows, including both foreign direct investment (FDI), and official development assistance (ODA) and export (Gavurova et al, 2020)
This paper is aimed at identifying whether remittances contribute to household savings in the Baltics along with other macroeconomic variables in a post-crisis period, duirng within which the relative smoothing and convergence of economic development of the Baltic countries can be observed after sharp economic distress in 2009
Summary
Remittances account for a significant part of foreign capital flows in developing countries. Remittances are considered to have a positive effect on the economy and be beneficial for development (e.g. Aguinas, 2006, Ghosh, 2006). It is not clear enough how remittances affect different aspects of wealth of a recipient economy. Remittances appear to be less volatile than other types of financial flows, including both foreign direct investment (FDI), and official development assistance (ODA) and export (Gavurova et al, 2020). They are more procyclical than ODA and less procyclical than financial flows. Remittances contribute to smoothing out consumptions of receiving households and facilitating them to mitigate sudden economic disaster better
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