Financial Flows and Per Capita Income in Developing Countries

27 Pages Posted: 17 Oct 2014

See all articles by Sajid Anwar

Sajid Anwar

University of the Sunshine Coast - School of Business

Arusha V. Cooray

Embassy of Sri Lanka, Oslo

Date Written: October 17, 2014

Abstract

Using country level panel data over the period 1970-2011, this paper evaluates the direct as well as indirect impact of three types of financial flows (foreign direct investment, remittances and official development aid) on the per capita income of a group of low and middle income countries. The empirical results suggest that the direct effect of official development aid in developing countries is mostly negative. This conclusion also holds when the sample is divided into different regions. All three estimation techniques used (i.e., Ordinary Least Squares, panel fixed effects and system Generalised Method of Moments) yield broadly similar results. We find that official development aid and government spending are complementary and hence, depending on the level of effectiveness of government spending programs, official development aid can have an indirect positive impact on income per capita. On the other hand, both remittances and foreign direct investment appear to have a direct positive and statistically significant effect on per capita income.

Keywords: FDI; remittances; official development aid; developing countries; panel data analysis

JEL Classification: F21; G15; O15; O23

Suggested Citation

Anwar, Sajid and Cooray, Arusha V., Financial Flows and Per Capita Income in Developing Countries (October 17, 2014). International Review of Economics & Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2511136

Sajid Anwar (Contact Author)

University of the Sunshine Coast - School of Business ( email )

90 Sippy Downs Drive
Sippy Downs, QLD 4556
Australia

Arusha V. Cooray

Embassy of Sri Lanka, Oslo ( email )

Norway

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