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Remittances Deteriorate Governance

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  • Faisal Z. Ahmed

    (Oxford University)

Abstract

I use a natural experiment of oil-price-driven remittance flows to poor, non-oil-producing Muslim countries to demonstrate that remittances deteriorate the quality of governance, especially in countries with weak democratic institutions. The results indicate that a 1 standard deviation increase in remittances raises corruption by 1.5 index points (on a 6-point scale), which is equivalent to a [dollar]600 decrease in per capita GDP. Concomitantly, remittances may enable governments to reduce their delivery of public services (for example, health care, school enrollment). The results suggest that political institutions may mediate the potentially beneficial socioeconomic effects of remittance inflows. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Faisal Z. Ahmed, 2013. "Remittances Deteriorate Governance," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1166-1182, October.
    • Handle: RePEc:tpr:restat:v:95:y:2013:i:4:p:1166-1182
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    More about this item

    Keywords

    remittance flows; governance;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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