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Effect of Remittance Inflows on External Debt in Developing Countries

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  • Abdoul’ Ganiou Mijiyawa

    (World Bank)

  • Djoulassi K. Oloufade

    (Central Bank of West African States (BCEAO))

Abstract

This paper analyzes the effect of remittance inflows on external debt in developing countries, by identifying international reserves as a potential transmission channel. Using panel data over the period 1970–2017 and covering 50 low-and middle-income countries worldwide, we find a positive and significant effect of remittance inflows on the external debt-to-GDP ratio. We also find a negative and significant effect of international reserves on external debt. After controlling for international reserves, the effect of remittance inflows on external debt increases; it remains positive and significant. The results suggest that the role of international reserves as a self-insurance mechanism, and the Dutch disease effect related to remittance inflows are at play. In addition, we find negative and significant effects of economic growth and savings-investment gap on external debt. We also find positive and significant effects of the nominal exchange rate and the United States lending interest rate on external debt. We discuss the policy implications of these findings, while highlighting factors that policymakers should focus on for containing external debt in developing countries in the post-COVID-19.

Suggested Citation

  • Abdoul’ Ganiou Mijiyawa & Djoulassi K. Oloufade, 2023. "Effect of Remittance Inflows on External Debt in Developing Countries," Open Economies Review, Springer, vol. 34(2), pages 437-470, April.
    • Handle: RePEc:kap:openec:v:34:y:2023:i:2:d:10.1007_s11079-022-09675-5
    DOI: 10.1007/s11079-022-09675-5
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    Cited by:

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    More about this item

    Keywords

    External Debt; Remittance Inflows; International Reserves; Low-and Middle-Income Countries;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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