Determinants of Income Smoothing via Remittance and Foreign Aid Flows

Posted: 14 Jul 2010  

Faruk Balli

Massey University - School of Economics and Finance; Suleyman Sah University - Department of Business Administration

Date Written: July 12, 2010

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

Suggested Citation

Balli, Faruk, Determinants of Income Smoothing via Remittance and Foreign Aid Flows (July 12, 2010). Available at SSRN: https://ssrn.com/abstract=1638878

Faruk Balli (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Suleyman Sah University - Department of Business Administration ( email )

Hayriye Dumankaya Campus
Atalar Mh. Sht. Hakan Kurban Cd
Istanbul, 34865
Turkey

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