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  • Are remittances and foreign aid interlinked? Evidence from least developed and developing countries

    Author(s)
    Abbas, Syed Ali
    Selvanathan, Eliyathamby A
    Selvanathan, Saroja
    Bandaralage, Jayatilleke S
    Griffith University Author(s)
    Selvanathan, Selva A.
    Bandaralage, Jayatilleke
    Selvanathan, Saroja
    Abbas, Syed A.
    Year published
    2021
    Metadata
    Show full item record
    Abstract
    Foreign aid and migrant remittances are major sources of external finance for developing countries, but there is little research into whether they are interlinked. In the existing literature, only a few studies have examined the nexus between these two financial flows and their conclusions have been mixed. This study, using recent data (1980–2016) from 50 aid-recipient countries, empirically analyses the relationship between foreign aid and remittances. Applying dynamic panel estimation techniques, we find a negative relationship between foreign aid and remittances. Further investigation of the transmission channels reveals ...
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    Foreign aid and migrant remittances are major sources of external finance for developing countries, but there is little research into whether they are interlinked. In the existing literature, only a few studies have examined the nexus between these two financial flows and their conclusions have been mixed. This study, using recent data (1980–2016) from 50 aid-recipient countries, empirically analyses the relationship between foreign aid and remittances. Applying dynamic panel estimation techniques, we find a negative relationship between foreign aid and remittances. Further investigation of the transmission channels reveals that foreign aid, by broadening human capital through its robust effects on education, increases remittance flows. The human capital led growth channel is found to be effective in all countries (and sub-groups), while the migration channel of aid significantly favours remittances only in the LDCs. Though aid substitutes remittances generally, it also increases remittances indirectly through different transmission channels.
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    Journal Title
    Economic Modelling
    Volume
    94
    DOI
    https://doi.org/10.1016/j.econmod.2020.10.005
    Subject
    Applied Economics
    Econometrics
    Banking, Finance and Investment
    Social Sciences
    Economics
    Business & Economics
    Foreign aid
    Remittances
    Publication URI
    http://hdl.handle.net/10072/402824
    Collection
    • Journal articles

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