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Remittances and Foreign Aid: Substitutes or Complements in the Economic Growth of Developing Countries?

Author

Listed:
  • LANIRAN, Temitope J.

    (Research Associate John and Elnora Ferguson Centre for African Studies, University of Bradford, and Centre for Petroleum, Energy Economics and Law, University of Ibadan, Ibadan, Nigeria)

  • OLAKUNLE, Victoria A.

    (School of Economics, The University of Nottingham, Nottingham, United Kingdom)

Abstract

Existing literature posits that there is an association between foreign aid and growth; however, the robustness of this relationship is often questioned. A similar lack of consensus exists on the relationship between remittances and growth. Given the significant outlays of foreign aid and remittances to developing countries, this study is motivated by the objective of investigating which of these transfers has the greater impact on growth. Employing panel data of 77 developing countries over the 1995-2011 periods using Systems GMM, the results suggest a substitutable relationship and not complementary between aid and remittances implying that the presence of remittance reduces the amount of aid allocated to a country and also its relative growth-impact. Rimesse ed aiuti dall’estero: sostituti o complementari nella crescita economica dei paesi in via di sviluppo? Secondo la letteratura esistente si ritiene vi sia una relazione tra aiuti esteri e crescita, ma la robustezza di tale relazione è stata più volte messa in discussione. Analogo dissenso sussiste sulla relazione rimesse/crescita. Dati i significativi importi degli aiuti esteri e delle rimesse verso i paesi in via di sviluppo, questo studio origina dalla necessità di analizzare quali di questi trasferimenti ha l’impatto maggiore sulla crescita. Tramite l’utilizzo del metodo System GMM su un campione di 77 paesi in via di sviluppo nel periodo 1995-2011, i risultati suggeriscono che esiste una relazione sostitutiva e non complementare tra aiuti e rimesse, con l’implicazione che la presenza di rimesse riduce l’ammontare degli aiuti destinati ad un paese ed anche il relativo impatto sulla crescita.

Suggested Citation

  • LANIRAN, Temitope J. & OLAKUNLE, Victoria A., 2019. "Remittances and Foreign Aid: Substitutes or Complements in the Economic Growth of Developing Countries?," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(1), pages 23-46.
    • Handle: RePEc:ris:ecoint:0839
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    References listed on IDEAS

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    Cited by:

    1. Nnyanzi John Bosco & Kilimani Nicholas & Oryema John Bosco, 2022. "How important are remittances to savings? Evidence from the Latin America and the Caribbean Countries," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 13(1), pages 1-37, January.
    2. Folorunsho M. Ajide & Tolulope T. Osinubi, 2022. "Foreign aid and entrepreneurship in Africa: the role of remittances and institutional quality," Economic Change and Restructuring, Springer, vol. 55(1), pages 193-224, February.
    3. Bettin, Giulia & Massidda, Carla & Piras, Romano, 2024. "The intertwined role of social and financial remittances in new firms' creation," Journal of International Management, Elsevier, vol. 30(1).
    4. Saba, Charles S., 2023. "Investigation of Telecommunication Infrastructures-Industrialisation-Growth Nexus: Evidence from Disaggregated Panel Data Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 76(2), pages 209-264.

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    More about this item

    Keywords

    Foreign Aid; Remittances; Economic Growth;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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