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Remittances and Institutions: Are Remittances a Curse?

Author

Listed:
  • Jihad Dagher
  • Mr. Ralph Chami
  • Mr. Peter J Montiel
  • Mr. Yasser Abdih

Abstract

This paper addresses the complex and overlooked relationship between the receipt of workers' remittances and institutional quality in the recipient country. Using a simple model, we show how an increase in remittance inflows can lead to deterioration of institutional quality - specifically, to an increase in the share of funds diverted by the government for its own purposes. Empirical testing of this proposition is complicated by the likelihood of reverse causality. In a cross section of 111 countries we document a negative impact of the ratio of remittance inflows to GDP on domestic institutional quality, even after controlling for potential reverse causality. We find that a higher ratio of remittances to GDP is associated with lower indices of control of corruption, government effectiveness, and rule of law.

Suggested Citation

  • Jihad Dagher & Mr. Ralph Chami & Mr. Peter J Montiel & Mr. Yasser Abdih, 2008. "Remittances and Institutions: Are Remittances a Curse?," IMF Working Papers 2008/029, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/029
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    More about this item

    Keywords

    WP; private income;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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