Follow the Money: Remittance Responses to FDI Inflows

Author:

Coon Michael,Neumann Rebecca

Abstract

AbstractMigrant networks are an important catalyst for promoting FDI flows between countries. Migrants also send increasingly large remittances to their home countries. This paper considers how these two capital flows are related, specifically examining how remittance flows respond to the amount of FDI inflows to a country. Using a panel of 118 countries over 1980–2010, we estimate a random effects model and find a positive and significant effect of FDI flows on remittances, while controlling for other standard determinants of remittance flows. We account for the potential endogeneity of FDI to remittances by utilizing a two-stage Instrumental Variables approach. These findings suggest that FDI complements remittances, rather than crowding out emigrant investment to the home countries. We find the relationship is strongest for low income countries, highlighting the importance of remittances as a source of investment capital in these countries.

Publisher

Walter de Gruyter GmbH

Subject

General Economics, Econometrics and Finance,Development,Geography, Planning and Development

Reference110 articles.

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4. FDI, Foreign Aid, Remittance and Economic Growth in Developing Countries;Review of Development Economics,2015

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