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Follow the Money: Remittance Responses to FDI Inflows

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  • Coon Michael

    (Sykes College of Business, University of Tampa, Tampa, FL, USA)

  • Neumann Rebecca

    (Economics Department, University of Wisconsin – Milwaukee, Milwaukee, WI 53201, USA)

Abstract

Migrant 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.

Suggested Citation

  • Coon Michael & Neumann Rebecca, 2017. "Follow the Money: Remittance Responses to FDI Inflows," Journal of Globalization and Development, De Gruyter, vol. 8(2), pages 1-20, December.
    • Handle: RePEc:bpj:globdv:v:8:y:2018:i:2:p:20:n:4
    DOI: 10.1515/jgd-2017-0023
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    Cited by:

    1. Lucas Njoroge, 2021. "Capital Inflows and Economic Growth in Selected COMESA Member Countries," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 10(4), pages 1-3.
    2. Mercy Laita PALAMULENI, 2018. "Do remittances really attract foreign direct investments? Evidence from panel cointegration," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(617), W), pages 221-234, Winter.
    3. Peter Nderitu GITHAIGA, 2019. "Foreign Remittances, Private Sector Investment and Banking Sector Development," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 3(2), pages 85-112.

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    More about this item

    Keywords

    FDI flows; migrant networks; openness; remittances;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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