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Do Remittances Crowd-In or Crowd-Out Domestic Investment? An Empirical Analysis of 24 Low-Income Countries

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  • Ranjan Kumar Dash

    (Symbiosis International University)

Abstract

International migration not only provides external capital in the form of remittances, but also has many positive externalities – such as trade creation, financial development, skill development, technology diffusion, productivity enhancement, and capital accumulation – for low-income countries. In this context, this paper examines whether remittances crowd in or crowd out domestic investment using data from 24 low-income countries over the period 2004–2018. Using second-generation panel methodology that accounts for endogeneity problem and cross-section dependency among countries, the study finds that remittances crowd in domestic investment in the long run. The results further suggest that the crowding in effect is more pronounced in countries with more developed financial systems and higher human capital levels. The results from the panel causality test also support the crowding in hypothesis as there seems to be mutual feedback effect between the two. Thus, the empirical analysis in the study posits that remittances play a critical role in economic development by promoting domestic investment in the recipient countries.

Suggested Citation

  • Ranjan Kumar Dash, 2023. "Do Remittances Crowd-In or Crowd-Out Domestic Investment? An Empirical Analysis of 24 Low-Income Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 1177-1193, June.
    • Handle: RePEc:spr:jknowl:v:14:y:2023:i:2:d:10.1007_s13132-022-00948-5
    DOI: 10.1007/s13132-022-00948-5
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    More about this item

    Keywords

    Investment; Remittances; Crowd-in; Crowd out and LICs;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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