Eftimoski, Dimitar and Josheski, Dushko (2021) Reopening the debate on the relationship among remittances, household consumption stability, and economic growth in emerging markets. International Journal of Emerging Markets, 16 (8). pp. 1892-1911. ISSN 1746-8809
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Abstract
The impact of remittances on household consumption stability and economic growth is not quite clear. This paper attempts to reopen the debate on the relationship among these three variables. The current remittance literature suggests that a decrease in household consumption volatility, induced by remittances, automatically leads to economic growth. This paper challenges these arguments by stating that, under certain circumstances, there is no automatic relationship among remittances, household consumption stability, and growth. We approach the question from the perspective of emerging Central, Eastern, and Southeastern European (CESEE) countries. We use the two-step system GMM estimator with the Windmeijer (2005) finite-sample correction. To test the existence of the possible non-linear effects of remittances on household consumption stability and economic growth, we use threshold regressions. We find that remittances significantly reduce household consumption volatility. They exhibit a consumption-smoothing effect on recipient households. This stabilizing effect happens not through the preventive role of remittances, but rather through their compensatory role. Remittances produce a weaker stabilizing effect on household consumption when the remittance to GDP ratio of the recipient country is above the estimated threshold level of 4.5%. We also find that there is a negatively significant and linear impact of remittances on growth. There is no evidence to suggest that remittances can foster productive investment and therefore promote economic growth in CESEE countries, which means: (1) that the remittances cannot be treated as a source of funds to invest in human and physical capital, and (2) that the remittances are compensatory rather than profit-oriented. As far as we are aware, this is the first study that investigates the impact of remittances on both household consumption stability and economic growth simultaneously.
| Item Type: | Article |
|---|---|
| Subjects: | Scientific Fields (Frascati) > Social Sciences > Economics and Business |
| Divisions: | Faculty of Law |
| Depositing User: | PhD Dimitar Eftimoski |
| Date Deposited: | 16 Aug 2023 11:10 |
| Last Modified: | 16 Aug 2023 11:10 |
| URI: | https://eprints.uklo.edu.mk/id/eprint/8531 |
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Reopening the debate on the relationship among remittances, household consumption stability, and economic growth in emerging markets. (deposited 16 Aug 2023 11:09)
- Reopening the debate on the relationship among remittances, household consumption stability, and economic growth in emerging markets. (deposited 16 Aug 2023 11:10) [Currently Displayed]
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