Working Papers, Department of Economics, Lund University
No 2011:1:
International Remittances – A proposal how to test hypotheses about determinants of remittances with macroeconomic time series
Peter Karpestam ()
and Fredrik N G Andersson ()
Abstract: We study the determinants of remittances to developing
countries at different time horizons. Remittances to developing countries
nowadays exceed official development assistance and constitute a
significant fraction of the disposable income of many households in
developing countries. Different hypotheses suggest that remittances are
often sent to compensate for low incomes, which may impose a downward bias
when estimating their effects on the economic development (e.g. growth,
poverty and consumption) in recipient countries. Two popular hypotheses
about the causes of remittances are the altruism and insurance hypothesis.
Both hypotheses suggest that remittances are sent to compensate for
short-run economic declines, but the altruism hypotheses also predict that
remittances should diminish gradually over time as the economic development
in the receiving countries proceeds and the need for outside assistance
decreases. Hence, the altruism hypothesis predicts a negative correlation
between the economic conditions in the receiving countries and remittances
in the long-run and the short-run, while the insurance hypothesis only
predicts a negative relationship in the short run. We can thus test which
hypothesis that is best supported the data by studying the correlation
between remittances and consumption in receiving countries at different
time horizons. For this purpose we use a macroeconomic panel with
consumption and remittances data from 50 low and middle income economies
between 1980 and 2006. We estimate Keynesian consumption functions with GDP
and remittances per capita as explanatory variables for the full panel and
for different subpanels. The data is decomposed into different time
horizons using a maximal overlap discrete wavelet transform. We are not
aware of any study which uses similar econometric techniques to test
different hypotheses about the underlying causes of remittances. Our
evidence predominantly supports a negative long-run relationship, which
favours the altruism over the insurance hypothesis.
Keywords: Remittances; Altruism; Insurance Hypothesis; (follow links to similar papers)
JEL-Codes: C23; C33; E27; F24; (follow links to similar papers)
19 pages, January 18, 2011
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
WP11_1.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to David Edgerton ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
