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Remittances and Financial Openness

50 Pages Posted: 20 Jun 2010  

Michel A. R. Beine

University of Luxemburg; CESifo (Center for Economic Studies and Ifo Institute)

Elisabetta Lodigiani

Ca Foscari University of Venice; University of Milan; University of Milan - Centro Studi Luca d'Agliano (LdA)

Robert Vermeulen

De Nederlandsche Bank

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Date Written: June 17, 2010

Abstract

Remittances have greatly increased during recent years, becoming an important and reliable source of funds for many developing countries. Therefore, there is a strong incentive for receiving countries to attract more remittances, especially through formal channels that turn to be either less expensive or less risky. One way of doing so is to increase their financial openness, but this policy option might generate additional costs in terms of macroeconomic volatility. In this paper we investigate the link between remittance receipts and financial openness. We develop a small model and statistically test for the existence of such a relationship with a sample of 66 mostly developing countries from 1980-2005. Empirically we use a dynamic generalized ordered logit model to deal with the categorical nature of the financial openness policy. We apply a two-step method akin to two stage least squares to deal with the endogeneity of remittances and potential measurement errors. We find a strong positive statistical and economic effect of remittances on financial openness.

Keywords: remittances, financial openness, government policy

JEL Classification: E60, F24, F41, O10

Suggested Citation

Beine, Michel A. R. and Lodigiani, Elisabetta and Vermeulen, Robert, Remittances and Financial Openness (June 17, 2010). CESifo Working Paper Series No. 3090. Available at SSRN: https://ssrn.com/abstract=1626130

Michel A. R. Beine (Contact Author)

University of Luxemburg ( email )

L-1511 Luxembourg
Luxembourg

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Elisabetta Lodigiani

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

University of Milan ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

University of Milan - Centro Studi Luca d'Agliano (LdA)

Via P. Amedeo 34
Milano, Mi 20122
Italy

Robert Vermeulen

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

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