Economic Informality and the Venture Funding Impact of Migrant Remittances to Developing Countries

55 Pages Posted: 19 Nov 2014

See all articles by Candace Martinez

Candace Martinez

IE Business School

Michael Cummings

University of Arkansas - Sam M. Walton College of Business

Paul M. Vaaler

University of Minnesota, Twin Cities - Law School and Carlson School of Management

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Date Written: November 18, 2014

Abstract

In developing countries, weak institutional capacity to observe and regulate the economy discourages foreign capital inflows vital to venture investment. This informality effect may differ for migrant remittances, inflows less reliant on formal arrangements. We use institutional and transaction cost theories to propose that informality shifts migrant remittances toward venture funding. Analyses in 48 developing countries observed from 2001-2009 support our proposition. When the informal sector exceeds approximately 46% of GDP, remittances increase venture funding availability. Migrants and their remittances are vital to funding new businesses and entrepreneurially-led economic growth in developing countries where substantial informality deters other foreign investors.

Keywords: informal economy, developing countries, entrepreneurship, venture funding availability, remittances, migrants

JEL Classification: L26, O16, O43

Suggested Citation

Martinez, Candace and Cummings, Michael E. and Vaaler, Paul M., Economic Informality and the Venture Funding Impact of Migrant Remittances to Developing Countries (November 18, 2014). Journal of Business Venturing, Forthcoming; Minnesota Legal Studies Research Paper No. 14-44. Available at SSRN: https://ssrn.com/abstract=2527600

Candace Martinez

IE Business School ( email )

Alvarez de Baena, 4
Madrid, 28006
Spain

Michael E. Cummings

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

Paul M. Vaaler (Contact Author)

University of Minnesota, Twin Cities - Law School and Carlson School of Management ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-4951 (Phone)
612-626-1316 (Fax)

HOME PAGE: http://carlsonschool.umn.edu/faculty/paul-vaaler

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