THE PLACE OF REMITTANCES IN FINANCIAL FLOWS INTO DEVELOPING ECONOMIES

Topic. This article examines the impact of remittances on the economy of recipient countries on the basis of econometric models.

Purpose. The authors set the aim to justify a point of view, according to which the influence of remittances on economic growth and investment in the CIS countries is dependent on the change of financial development variable.

Methodology. The research methodology is based on the interpretation of models, which allows answering following question: how does the level of financial development in the recipient country affect the degree of influence of remittances on economic growth. For assessment of the cyclical properties of remittances’ flows, we used Hodrick-Prescott filter technique. The evaluation of this impact has been conducted in accordance with the extended version of the neoclassical model using the system generalized method of moments (S-GMM). We also used a threshold estimation as an alternative test for resistance to errors.

Results. We present threshold model with a threshold parameter. We also propose a definition of pro-cyclical, counter-cyclical and acyclic remittances, based on the types of correlation between the cyclical components of real remittances and real GDP in the home countries of migrants. The resulting conclusion states that remittance has a positive impact on economic growth in less developed financial systems. Remittance de facto act as substitutes for the ‘weak’ financial services, giving people the opportunity to meet the needs in lending and insurance, which are not able to provide by the market. On the other hand, remittance has a negative impact on economic growth in countries with more developed financial sectors.

Conclusions. It is concluded that in most CIS countries, remittance is pro-cyclical ones yet in varying degrees: while improving the economic situation in the migrants’ country they are more inclined to send remittance in search of investment opportunities.

remittance, foreign direct investment, official assistance for development, economic growth, financial flows, money transfers, regression growth model, econometric models

1. Vakulenko E.S., Mkrtchyan N.V. and Furmanov K.K. Econometric Analysis of Internal Migration in Russia. Montenegrin Journal of Economics, 2011, vol. 7, no. 2, pp. 21–33.

2. Andrienko Y., Guriev S. Determinants of interregional mobility in Russia. The Economics of Transition, 2004, vol. 12, iss. 1, pp. 1–27.

3. Динь Ха Ми. Социально-экономические условия миграции из Вьетнама в Россию // Вестник Иркутского государственного технического университета 2015. № 4 (99). С. 251–255. Dinh Ha Mi. Socio-economic conditions of migration from Vietnam to Russia. Vestnik Irkutskogo gosudarstvennogo tekhnicheskogo universiteta = Bulletin of Irkutsk State Technical University, 2015, no. (99), pp. 251–255. (In Russ.).

4. O’Hara S., Artjoms I. and Gentile M.The Impact of Global Economic Crisis on Remittances in the Commonwealth of Independent States. Eurasian Geography & Economics, 2009, vol. 50, no. 4, pp. 447–463.

5. Ratha D., Mohapatra S. and Xu Z. Outlook for Remittance Flows 2008–2010: Growth Expected to Moderate Significantly, but Flows to Remain Resilient. Migration and Development Brief, 2008, no. 8, November 11, 14 p.

6. Cohen Jeffrey H. Transnational Migration in Rural Oaxaca, Mexico: Dependency, Development, and the Household. American Anthropologist, 2008, no. 4, 103 (4), pp. 954–967.

7. Kim K. and Cohen J. Determinants of International Migration Flows to and from Industrialized Countries: A Panel Data Approach Beyond Gravity. International Migration Review, 2010, vol. 44, no. 4, pp. 899–932.

8. Kazuhiro K. Migration Tajik Labour Migrants and their Remittances: Is Tajik Migration Pro-Poor? Global COE HiStat Discussion Paper Series. Tokyo: Institute of Economic Research Hitotsubashi University, 2011. 32 p.

9. Kazuhiro K. (2016). Interregional Migration: Analysis of Origin-to-Destination Matrix. In Karabchuk, T., Kumo, K., & Skoglund, E. Demography of Russia: From the Past to the Present (pp. 261–314). London, UK: Palgrave Macmillan.

10. Cohen Jeffrey H. Migration, Remittances, and Household Strategies. Annual Review of Anthropology, 2011, vol. 40, pp. 103–114.

11. Jongwanich J. Workers’ Remittances, Economic Growth and Poverty in Developing Asia and the Pacific Countries. UNESCAP Working Paper. 2007, no. WP/07/01. 27 p.

12. Ткаченко А.А. Измерение бедности и трудовой миграции в странах ЕАЭС и СНГ: различия методологических подходов // Россия: тенденции и перспективы развития. Ежегодник. Вып. 12. / отв. ред. В.И. Герасимов. М.: ИНИОН РАН, 2017. Ч. 1. 984 с. Tkachenko A.A. Measuring Poverty and Labor Migration in the EAEU and CIS Countries: Differences in Methodological Approaches. = Rossiya: tendencii i perspektivy razvitiya. Ezhegodnik. Vyp. 12 / оtv. red. V.I. Gerasimov. Moscow: INION RAN Publ., 2017. Ch. 1. 984 p. (In Russ.).

13. Barro R. & Sala-i-Marin M. Economic Growth. Cambridge, MA: MIT Press, 2004. 672 p.

14. Arellano M., Bond S. Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 1991, vol. 58, iss. 2, pp. 277–297.

15. Hansen B.Inference When a Nuisance Parameter Is Not Identified Under the Null Hypothesis. Econometrica, 1996, vol. 64, no. 2, pp. 413–430.

16. Hansen B. Sample Splitting and Threshold Estimation. Econometrica, 2000, vol. 68, no. 3, pp. 575–603.