Determinants of Income Smoothing via Remittance and Foreign Aid Flows

Abstract:     
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

working papers series