Determinants of Income Smoothing via Remittance and Foreign Aid Flows
Massey University - School of Economics and Finance; Suleyman Sah University - Department of Business Administration
July 12, 2010
In this paper we quantify the international income smoothing via remittance flows and foreign aid flows (both ODA loans and grants) for low income countries in a cross section analysis. We find that remittances smooth some portion of the domestic output shocks for the low income countries in a range 45% (Tajikistan) to -13% (Haiti). Searching for the determinants of the smoothing via remittances, we find that smoothing via remittance increases for a country as the emigrants of that country diversified more across the world. Also for lower populated economies smoothing via remittance is relatively higher. We explore that cultural factors - through religion - affect the extent of smoothing via remittances significantly.
Keywords: Remittance foreign aid, income smoothing, diversification
JEL Classification: F36, F24, F41
Date posted: July 14, 2010
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