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Remittances and Institutions: Are Remittances a Curse?

33 Pages Posted: 18 Feb 2008  

Yasser Abdih

International Monetary Fund (IMF)

Jihad C. Dagher

International Monetary Fund (IMF) - Research Department

Ralph Chami

International Monetary Fund (IMF)

Peter J. Montiel

Williams College - Department of Economics

Date Written: February 2008

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.

Keywords: Corruption, Workers remittances, Economic growth

Suggested Citation

Abdih, Yasser and Dagher, Jihad C. and Chami, Ralph and Montiel, Peter J., Remittances and Institutions: Are Remittances a Curse? (February 2008). IMF Working Papers, Vol. , pp. 1-31, 2008. Available at SSRN: https://ssrn.com/abstract=1094211

Yasser Abdih (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jihad Dagher

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Ralph Chami

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6039 (Phone)
202-623-6068 (Fax)

Peter Montiel

Williams College - Department of Economics ( email )

Fernald House
Office: Fernald 14
Williamstown, MA 01267
United States
413-597-2103 (Phone)
413-597-4045 (Fax)

HOME PAGE: http://www.williams.edu/Economics/faculty/montiel.htm

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