How important are remittances to savings? Evidence from the Latin America and the Caribbean Countries

	East Asia & Pacific			South Asia			Latin America & Caribbean			Middle East & North Africa			SSA
	GDS	GS	REM	GDS	GS	REM	GDS	GS	REM	GDS	GS	REM	GDS	GS	REM
1985	32.8	–	–	15	18	1.99	23.7	19.2	0.39	19.1	–	–	27.7	26.2	0.69
1986	33.2	–	–	14.6	16.9	1.81	21.2	17.0	0.44	15.2	–	–	28.8	27.2	0.68
1995	34.8	–	0.19	23.7	25.9	2.1	19.4	17.1	0.74	27.6	25.8	–	23.0	22.5	0.96
1996	34.4	34	0.22	23.3	25.8	2.36	19.5	16.9	0.68	29.9	27.0	–	21.9	21.1	0.85
1997	34.5	34.4	0.29	23.1	26.3	2.66	19.7	17.6	0.66	29.5	26.4	–	21.8	21.9	1.08
2005	34.6	35.2	0.37	28.9	33.2	3.28	22.6	20.3	1.81	41.0	39.5	1.95	23.7	22.9	2.91
2006	35.4	36.4	0.39	30.1	34.5	3.57	23.2	21.0	1.91	41.8	40.8	1.82	26.8	27.0	2.86
2007	36.3	37.5	0.42	30.4	35.1	3.62	23.1	22.2	1.73	41.5	40.7	1.92	22.5	21.5	2.74
2010	36.1	36.9	0.42	30.3	34.6	3.98	22.1	20.6	1.1	40.4	–	1.67	22.4	20.8	2.4
2015	34.4	35.4	0.58	27.5	31.8	4.36	18.4	17.2	1.4	31.2	–	1.94	18.2	17.7	2.59
2016	34.2	35.0	0.53	27.3	31	3.79	18.4	16.9	1.5	30.5	–	1.91	18.1	17.4	2.48
2017	34.8	35.8	0.49	27	30.3	3.5	18.5	17.5	1.5	31.6	–	2.09	19.0	18.3	2.54
2018	34.6	35.5	0.46	26.4	29.9	3.82	18.7	17.6	1.7	32.3	–	2.2	18.2	17.6	2.84

[i] Source: World Bank (2019): GDS, gross domestic savings; GDP, gross domestic product; GS, gross savings; REM, remittance inflows; SSA, Sub-Saharan Africa.

Table 2

Remittance inflows to low- and middle-income regions

	2010	2016	2017	2018
(US$ billions)
Low and middle income	343	444	484	526
EAP	96	128	134	143
Europe and Central Asia	38	44	53	58
Latin America and the Caribbean	56	73	81	88
MENA	39	51	57	58
South Asia	82	111	117	132
SSA	32	38	42	47
World	470	589	634	683
Growth rate (%)
Low and middle income	11.6	–1.6	9.1	8.6
EAP	19.9	–0.5	5.1	6.8
Europe and Central Asia	5.6	0.1	22.3	8.4
Latin America and the Caribbean	2.5	7.4	10.8	9.6
MENA	18.2	–1.2	12.1	1.6
South Asia	9.4	–5.9	5.8	12.7
SSA	11.1	–9.9	9.4	10.7
World	8.6	–1.1	7.7	7.6
(% of GDP)
Low and middle income	1.5	1.6	1.6	1.6
EAP	0.4	0.5	0.5	0.5
Europe and Central Asia	0.6	0.8	0.8	0.8
Latin America and the Caribbean	1.1	1.5	1.5	1.7
MENA	1.7	1.9	2.1	2.2
South Asia	4	3.8	3.5	3.8
SSA	2.4	2.5	2.5	2.8
World	0.6	0.7	0.7	0.8

[i] Source: World Bank (2019).

[ii] EAP, East Asia and Pacific; GDP, gross domestic product; MENA, Middle East and North Africa; SSA, Sub-Saharan Africa.

Table 3

Variable description and source

Variable name	Definition	Source
GS	GS (current $US)	World Bank WDI
Remittances (REM)	Personal Remittances ($US). Personal remittances comprise personal transfers and compensation of employees.	World Bank WDI
DIR	DIR.	World Bank WDI
Inflation (INF)	IR, Consumer Price Index (annual)	World Bank WDI
GDP	GDP per capita (current $US)	World Bank WDI
Foreign aid (AID)	Foreign Aid (current $US)	World Bank
Institutional quality (INST)	Governance quality indices, including RL, RQ, GE, VA, and CC. Other measures of institutional quality used in the study are PR (PL) and CL indices that constitute the Freedom of the World Index.	World Bank WGI Freedom House
FDI	FDI (current $US)	World Bank WDI
FD	Domestic credit provided by banking sector (current $US)	World Bank WDI
FC dummy	FC of 2007 onward	NA

[i] CC, control of corruption; CL, civil liberties; DIR, deposit interest rate; FC, financial crisis; FD, financial development; FDI, foreign direct investment; GDP, gross domestic product; GE, government effectiveness; GS, gross savings; IR, inflation rate; PR, political rights; RL, rule of law; RQ, regulatory quality; VA, voice and accountability; WDI, World Bank's Development Indicators.

Table 4

Descriptive statistics (N = 374) – original values

	Mean	SD	SE (mean)	skewness	kurtosis
GS (billion $))	38.37	79.29	4.11	3.07	12.82
Remittances (billion $)	2.54	5.22	0.27	3.93	19.08
AID (billion $)	0.32	0.34	0.02	2.20	12.27
FDI (billion $)	6.94	14.61	0.76	3.73	19.04
DIR (%)	7.29	5.76	0.30	1.65	6.82
Credit (trillion $)	19.74	65.33	3.38	5.28	34.65
Inflation	6.11	5.15	0.27	3.24	22.42
GDP (billion $)	205.66	430.33	22.25	3.25	14.47
PR	2.52	1.20	0.06	0.73	3.57
CL	2.83	1.06	0.05	0.37	3.13
Institutional quality	−0.22	0.53	0.03	0.80	4.00
Corruption	−0.38	0.63	0.03	1.27	4.93
GE	−0.27	0.60	0.03	0.12	4.10
PS	−0.32	0.60	0.03	−0.43	3.54
RQ	−0.05	0.59	0.03	0.55	3.36
RL	−0.45	0.62	0.03	1.18	4.53
VA	0.14	0.51	0.03	0.05	2.73

[i] Notes: N are observations.

[ii] Source: Author calculations.

[iii] CL, civil liberties; DIR, Deposit interest rate; GDP, gross domestic product; GE, government effectiveness; GS, gross savings; PR, political rights; PS, political stability; RL, rule of law; RQ, regulatory quality; SD, standard deviation; SE, standard error; VA, voice and accountability.

Table 5

Pairwise correlation matrix – transformed variables

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
(1) DIR	1.000
(2) GDP	−0.085	1.000
(3) INF	0.484	−0.205	1.000
(4) Credit	0.055	0.447	0.075	1.000
(5) REM	−0.061	0.146	0.105	0.283	1.000
(6) AID	−0.130	−0.330	−0.022	0.129	0.542	1.000
(7) FDI	0.112	0.740	−0.041	0.537	0.454	0.148	1.000
(8) INS	0.006	0.647	−0.206	0.272	−0.393	−0.483	0.454	1.000

[i] Source: Author's calculations.

[ii] DIR, deposit interest rate; FDI, foreign direct investment; GDP, gross domestic product; AID, Foreign aid; INF, inflation; REM, remittances.

Table 6

Cross-sectional dependence and homogeneity tests – full sample

Type of tests, literature references	Statistic	p-value
Cross-dependency tests
LM (Breusch and Pagan, 1980)	246.6	0.0000
LM adj^* (Pesaran and Yamagata, 2008)	5.243	0.0000
LM CD^* (Pesaran, 2004)	6.346	0.0000
Homogeneity tests
Pesaran and Yamagata (2008) (PY)
Delta	7.024	0.0000
Delta_adj.	9.137	0.0000
Blomquist and Westerlund (2013) (BW)
Delta	8.429	0.0000
Delta_adj.	10.965	0.0000

Notes:

* two-sided test.

Source: Author's calculations.

LM, Lagrange multiplier; CD, cross-sectional dependence.

Table 7

Pesaran CD test

	CD-test	p-value	corr	abs(corr)
Remittances	48.1	0.000	0.912	0.912
Foreign aid	8.01	0.000	0.154	0.281
FDI	30.9	0.000	0.564	0.569
DIR	28.94	0.000	0.529	0.592
Inflation	13.85	0.000	0.253	0.353
GDP	51.21	0.000	0.936	0.936
Credit	52.1	0.000	0.952	0.952
Institutional quality index (INST)	8.01	0.000	0.146	0.337
PS index	6.15	0.000	0.112	0.358
RQ index	9.97	0.000	0.182	0.399
GE index	6.62	0.000	0.123	0.428
CC index	0.82	0.413	0.015	0.317
RL index	−1.52	0.127	−0.028	0.340
Change in VA index	5.54	0.000	0.104	0.294

[i] Notes: Presuming the null hypothesis of cross-sectional independence, the Pesaran statistic (CSD) is assigned as N (0, 1) with Stata command XTCSD. The average correlation (corr) and absolute average correlation (Abs [corr]) coefficients existing between each type of energy variable are estimated. All variables are logged except inflation and the institutional indices.

[ii] Source: Author's calculations.

[iii] CC, control of corruption; DIR, Deposit interest rate; FDI, foreign direct investment; GDP, gross domestic product; GE, government effectiveness; PS, political stability; RL, rule of law; RQ, regulatory quality; VA, voice and accountability.

Table 8

Panel unit root tests – first and second generations

	First-generation test		Second-generation test
	MW test No trend	MW test With trend	CADF test No trend	CADF test With trend
REM	62.99^***	35.53	−1.885	−2.574
ΔREM	196.96^***	172.9^***	−3.926^***	−3.945^***
AID	138.49^***	152.9^***	−3.36^***	−3.97^***
ΔAID	733.15^***	613.58^***	−5.64^***	−5.54^***
FDI	54.53^**	72.11^***	−2.86^***	−3.23^***
ΔFDI	439.49^***	348.9^***	−5.33^***	−5.35^***
DIR	54.00^**	18.9	−2.26^**	−2.25
ΔDIR	226.91^***	194.31^***	−3.68^***	−3.86^***
INF	145.31^***	134.29^***	−2.81^***	−2.71^**
ΔINF	488.03^***	402.33^***	−4.69^***	−4.79^***
GDP	12.61	14.76	−2.62^***	−2.62
ΔGDP	150.4^***	108.85^***	−3.83^***	−3.92^***
INST	34.76	77.89^***	−1.96	−2.96^***
ΔINST	358.02^***	302.19^***	−4.39^***	− 4.41^***
Credit	25.84	12.99	−1.33	−1.98
Δcredit	194.12^***	183.35^***	−3.61^***	−4.01^***
CC	54.00^**	39.37	−2.34^***	−2.67^*
ΔCC	371.13^***	317.23^***	−4.54^***	−4.71^***
PS	52.01^**	55.99^**	−2.26^**	−3.23^***
ΔPS	383.63^***	305.27^***	−5.00^***	−5.06^***
RQ	49.21^**	440.96^***	−2.26^**	−2.73^**
ΔRQ	46.86^*	364.06^***	−4.63^***	−4.65^***
RL	49.95^**	47.12^*	−1.85	−2.49
ΔRL	278.29^***	231.07^***	−3.96^***	−3.99^***
GE	53.5^**	46.11^*	−2.07^*	−2.56
ΔGE	336.32^***	263.68^***	−4.28^***	−4.24^***
VA	69.27^***	62.48^***	−1.62	−2.25
ΔVA	335.34^***	267.89^***	−4.29^***	−4.44^***
POLRIGHTS	75.33^***	65.25^***	−1.81	−2.22
ΔPOLRIGHTS	383.95^***	320.25^***	− 3.97^***	− 4.27^***
CIVLIB	40.91	21.81	−1.16	−1.59
ΔCIVLIB	244.03^***	206.64^***	−2.79^***	− 2.98^***
GS	8.319	27.27	−2.51^**	−2.92^***
ΔGS	269.45^***	198.02^***	−4.83^***	− 4.84^***

Notes:

*** p < 0.01

** p < 0.05

* p < 0.1;

Δ denotes first differences. In the Pesaran (2007) CADF test, rejection of the null hypothesis indicates stationarity in at least one country. In the MW test, the rejection of the null of unit root implies stationarity.

CC, control of corruption; DIR, deposit interest rate; FDI, foreign direct investment; GDP, gross domestic product; GE, government effectiveness; GS, gross savings; PS, political stability; RL, rule of law; RQ, regulatory quality; VA, voice and accountability; CIVLIB, civil liberties; INF; inflation; REM, remittances.

Table 9

Westerlund (2008) cointegration test

	Statistic	Value	Z-value	p-value
Inward remittances	Gt	−2.917	−2.879	0.002^***
	Ga	−16.403	−2.793	0.003^***
	Pt	−11.065	−2.741	0.003^***
	Pa	−14.969	−4.152	0.000^***
FDI	Gt	−2.901	−2.80	0.003^***
	Ga	− 21.476	−5.937	0.000^***
	Pt	−10.784	−2.414	0.008^***
	Pa	−15.976	−4.847	0.000^***
Foreign aid	Gt	−2.658	−1.549	0.061^*
	Ga	−16.466	−2.831	0.002^***
	Pt	−10.490	−2.072	0.019^**
	Pa	−13.870	−3.394	0.000^***
DIR	Gt	−2.796	−2.257	0.012^**
	Ga	−17.132	−3.244	0.001^***
	Pt	−12.307	−4.188	0.000^***
	Pa	−16.571	−5.258	0.000^***
Inflation	Gt	−2.442	−0.443	0.329
	Ga	−16.184	−2.657	0.004^***
	Pt	−9.717	−1.171	0.121
	Pa	−13.221	−2.946	0.002^***
GDP	Gt	−3.234	−4.507	0.000^***
	Ga	−13.383	0.921	0.179
	Pt	−10.895	−2.544	0.006^***
	Pa	−13.402	−3.070	0.001^***
Governance quality	Gt	−2.699	−1.759	0.039^**
	Ga	−17.735	−3.618	0.000^**
	Pt	−10.464	−2.041	0.021^**
	Pa	−13.557	−3.178	0.001^***
FD	Gt	−2.969	−3.146	0.001^***
	Ga	−11.525	0.231	0.591
	Pt	−11.139	−2.828	0.002^***
	Pa	−11.076	−1.465	0.071^*
PR	Gt	−2.948	−3.040	0.001^***
	Ga	−17.790	−3.652	0.000^***
	Pt	−11.395	−3.126	0.001^***
	Pa	−14.642	−3.926	0.000^***
CL	Gt	−3.044	−3.532	0.000^***
	Ga	−17.083	−3.214	0.001^**
	Pt	−10.286	−1.834	0.033^**
	Pa	−12.651	−2.552	0.005^***

Notes:

*** p < 0.01

** p < 0.05

* p < 0.1.

The Gt and Ga statistics test cointegration for each cross section, and Pt and Pa test cointegration in the panel. The null hypothesis is no cointegration. Number of lags determined by AIC. The dependent variable is GS.

Source: Author's calculations.

CL, civil liberties; DIR, Deposit interest rate; FDI, foreign direct investment; GDP, gross domestic product; GS, gross savings; PR, political rights.

Table 10

Cointegration test results

	Statistic	p-value
a) Kao test for cointegration
Modified DF t	−7.5867	0.0000
DF t	−5.7238	0.0000
Augmented DF t (McCoskey and Kao (1998)	−3.8749	0.0001
Unadjusted modified DF	−8.9975	0.0000
Unadjusted DF t	−6.0623	0.0000
b) Pedroni test for cointegration
Modified Phillips–Perron t	4.7103	0.000
Phillips-Perron t	−1.8689	0.0308
Augmented DF t	−1.2168	0.1118

Notes: For Pedroni – Ho: No cointegration; Ha: All panels are cointegrated; No trend included. For Kao – Ho: No cointegration; Ha: Some panels are cointegrated; No trend included. The lags used were automatically selected based on the Newey–West bandwidth using the Bartlett kernel.

*** Indicates the parameters are significant at 1% probability.

Source: Author's calculations.

DF, Dickey–Fuller.

Table 11

Remittances and savings

	(1) TRAD	(2) REM	(3) AID	(4) FDI	(5) FC	(6) FD	(7) GOV
Long-run
DIR	−0.012^** (0.005)	−0.002 (0.004)	−0.003 (0.004)	−0.000 (0.004)	0.001 (0.004)	−0.014^*** (0.004)	−0.002 (0.002)
GDP	0.879^*** (0.040)	0.879^*** (0.040)	0.886^*** (0.039)	0.942^*** (0.048)	0.958^*** (0.047)	0.897^*** (0.061)	1.228^*** (0.052)
INF		0.005^* (0.003)	0.006^* (0.003)	0.003 (0.003)	0.003 (0.003)	0.009^** (0.004)	−0.009^** (0.004)
Remittances (REM)		0.102^*** (0.027)	0.100^*** (0.027)	0.086^*** (0.026)	0.080^*** (0.026)	0.056^* (0.032)	−0.065^* (0.035)
Foreign aid			0.013 (0.015)		0.012 (0.015)		0.176^*** (0.022)
FDI				−0.057^** (0.023)	−0.044^* (0.023)		−0.249^*** (0.026)
Credit						0.013 (0.036)
INST							0.075^*** (0.012)
Speed of adjustment
ECT	−0.361^*** (0.051)	−0.430^*** (0.063)	−0.432^*** (0.064)	−0.429^*** (0.069)	−0.443^*** (0.073)	−0.412^*** (0.056)	−0.234^*** (0.067)
Short-run
DIR	0.030^* (0.017)	0.033 (0.023)	0.030 (0.023)	0.031^* (0.018)	0.027 (0.018)	0.037 (0.024)	0.031^* (0.018)
GDP	1.357^*** (0.290)	1.264^*** (0.312)	1.256^*** (0.304)	1.342^*** (0.345)	1.316^*** (0.324)	1.273^*** (0.291)	1.584^*** (0.366)
INF		−0.006^** (0.003)	−0.006^*** (0.002)	−0.007^** (0.003)	−0.008^** (0.003)	−0.007^** (0.003)	−0.013 (0.010)
REM		0.219^** (0.096)	0.220^** (0.095)	0.180^** (0.090)	0.202^** (0.090)	0.277^** (0.110)	0.290^** (0.114)
AID			0.021 (0.017)		0.005 (0.021)		−0.011 (0.031)
FDI				0.047 (0.032)	0.047 (0.040)		0.102 (0.087)
Credit						−0.236 (0.164)
INST							0.050 (0.089)
Observations	357	357	357	357	357	357	357

Notes: All variables are in their level form and logged, apart from IR, interest rates, and institutional quality; GDP, remittances, foreign aid, and FDIs are all in billions; estimations are based on the PMG estimator chosen over the MG estimator based on the Hausman test where all p-values were found to be greater than 5% in all specifications. The Hausman test with a p-value greater than 5% informed the choice of PMG over the MG estimator; SEs in parentheses.

*** p < 0.01

** p < 0.05

* p < 0.1.

Source: Author calculations.

DIR, Deposit interest rate; ECT, error correction term; FC, financial crisis; FDI, foreign direct investment; GDP, gross domestic product; MG, mean group; PMG, pooled mean group; SE, standard error; GOV, governance; AID, foreign aid; TRAD, traditional; REM, Remittances; INF, inflation.

Table 12

Governance, PR, CL, and FC on savings

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
	INST	REM × INST	PR	REM × PR	CL	REM × CL	FC	REM × FC
Long-run
Inward Remittances (REM)	−0.065^* (0.035)	0.014 (0.030)	0.084^*** (0.026)	0.060 (0.037)	0.150^*** (0.025)	0.331^** (0.134)	0.047^* (0.026)	0.084^*** (0.022)
Foreign Aid	0.176^*** (0.022)	−0.032^*** (0.012)	0.021 (0.017)	−0.101^*** (0.030)	−0.005 (0.011)	0.242^*** (0.014)	0.063^*** (0.019)	0.012 (0.019)
Inward FDI	−0.249^*** (0.026)	−0.098^*** (0.021)	−0.040^* (0.024)	0.079^*** (0.022)	−0.070^*** (0.021)	−0.399^*** (0.022)	−0.089^*** (0.016)	−0.083^*** (0.014)
DIRs	−0.002 (0.002)	0.003 (0.005)	0.000 (0.004)	−0.028^*** (0.004)	−0.002 (0.004)	−0.007^*** (0.002)	−0.007^** (0.003)	−0.002 (0.003)
Inflation	−0.009^** (0.004)	−0.007^* (0.004)	0.006^** (0.003)	−0.003 (0.005)	−0.003 (0.004)	0.003 (0.004)	0.004 (0.003)	−0.000 (0.003)
GDP	1.228^*** (0.052)	1.006^*** (0.041)	1.010^*** (0.050)	0.692^*** (0.064)	0.803^*** (0.051)	1.394^*** (0.041)	1.143^*** (0.051)	1.080^*** (0.048)
Governance Quality (INST)	0.075^*** (0.012)	−0.092^*** (0.022)
REM × INST		−0.013^*** (0.005)
PR			−0.031 (0.047)	0.196^*** (0.063)
REM × PR				0.061^*** (0.023)
CL					0.278^*** (0.045)	0.541^*** (0.132)
REM × CL						−0.746^*** (0.156)
FC							−0.173^*** (0.036)	−0.206^*** (0.041)
REM × FC								0.036^** (0.018)
Speed of adjustment
ECT	−0.234^*** (0.067)	−0.406^*** (0.095)	−0.444^*** (0.076)	−0.361^*** (0.070)	−0.368^*** (0.087)	−0.142^** (0.065)	−0.399^*** (0.073)	−0.440^*** (0.087)
Short-run
Inward Remittances (REM)	0.290^** (0.114)	0.272^** (0.136)	0.246^*** (0.093)	0.449^** (0.194)	0.205^** (0.100)	−1.557^* (0.920)	0.168^* (0.092)	0.091 (0.097)
Foreign Aid	−0.011 (0.031)	0.014 (0.027)	0.002 (0.021)	−0.000 (0.017)	0.003 (0.022)	−0.004 (0.022)	0.001 (0.022)	0.015 (0.018)
Inward FDI	0.102 (0.087)	0.072 (0.084)	0.056 (0.048)	0.013 (0.052)	0.052 (0.053)	0.052 (0.067)	0.051 (0.042)	0.038 (0.037)
DIRs	0.031^* (0.018)	0.029 (0.018)	0.024 (0.018)	0.034^* (0.020)	0.021 (0.018)	0.022 (0.014)	0.036^* (0.021)	0.039^* (0.020)
Inflation	−0.013 (0.010)	−0.013 (0.010)	−0.009^*** (0.003)	−0.004 (0.003)	−0.006^* (0.003)	−0.010^** (0.005)	−0.005^* (0.003)	−0.003 (0.003)
GDP	1.584^*** (0.366)	1.575^*** (0.386)	1.189^*** (0.341)	1.344^*** (0.308)	1.446^*** (0.352)	1.776^*** (0.459)	1.402^*** (0.443)	1.470^*** (0.474)
Governance Quality (INST)	0.050 (0.089)	0.025 (0.122)
REM × INST		−0.009 (0.053)
PR			−0.072 (0.096)	−0.659 (0.490)
REM × PR				−0.246 (0.229)
CL					−0.264^* (0.148)	4.734 (4.273)
REM × CL						2.129^* (1.251)
FC							0.054 (0.039)	0.195 (0.206)
REM × FC								0.049 (0.150)

Notes: The Hausman test with a p-value greater than 5% informed the choice of PMG over the MG estimator; SEs in parentheses; Total observations (N) are 357.

Source: Author calculations.

*** p < 0.01

** p < 0.05

* p < 0.1.

CL, civil liberties; DIR, deposit interest rate; ECT, error correction term; FC, financial crisis; FDI, foreign direct investment; GDP, gross domestic product; MG, mean group; PMG, pooled mean group; PR, political rights; SE, standard error.

Table 13

Individual governance indicators and savings

	(1)	(2)	(3)	(4)	(5)	(6)
	CC	REM × CC	PS	REM × PS	RQ	REM × RQ
Long-run
Remittances (REM)	−0.134^*** (0.035)	0.065^** (0.026)	−0.085^*** (0.031)	−0.112^** (0.046)	−0.109^*** (0.041)	0.049^* (0.030)
Foreign Aid	0.166^*** (0.020)	−0.009 (0.018)	0.194^*** (0.020)	0.220^*** (0.018)	0.183^*** (0.019)	0.004 (0.010)
FDI	−0.266^*** (0.021)	−0.035^* (0.021)	−0.212^*** (0.024)	−0.247^*** (0.024)	−0.291^*** (0.026)	−0.060^** (0.024)
DIR	−0.006^*** (0.001)	0.003 (0.004)	0.004^** (0.002)	0.005^*** (0.002)	−0.005^*** (0.002)	0.007^** (0.003)
Inflation	−0.003 (0.003)	−0.001 (0.003)	−0.015^*** (0.004)	−0.017^*** (0.003)	−0.002 (0.003)	−0.001 (0.003)
GDP	1.273^*** (0.037)	0.936^*** (0.051)	1.224^*** (0.048)	1.255^*** (0.050)	1.298^*** (0.044)	1.023^*** (0.041)
CC	0.005^*** (0.001)	0.000 (0.001)
REM × CORR		−0.037^** (0.015)
PS)			0.208^*** (0.026)	0.242^*** (0.044)
REM × PS				−0.080 (0.049)
RQ					0.206^*** (0.031)	−0.058 (0.057)
REM × RQ						−0.084^*** (0.016)
Speed of adjustment
ECT	−0.236^*** (0.078)	−0.442^*** (0.085)	−0.209^*** (0.061)	−0.190^*** (0.062)	−0.205^*** (0.065)	−0.486^*** (0.089)
Short-run
Remittances (REM)	0.235^*** (0.086)	0.317^** (0.141)	0.230^** (0.090)	0.216^** (0.095)	0.218^** (0.086)	0.173^* (0.091)
Foreign Aid	−0.032 (0.041)	−0.007 (0.030)	−0.002 (0.020)	−0.001 (0.020)	−0.017 (0.023)	0.003 (0.018)
FDI	0.090 (0.077)	0.053 (0.055)	0.067 (0.056)	0.069 (0.058)	0.085 (0.076)	0.051 (0.056)
DIR	0.036^* (0.021)	0.030 (0.023)	0.029^* (0.017)	0.029^* (0.016)	0.028^** (0.013)	0.022^* (0.012)
Inflation	−0.009 (0.006)	−0.009^* (0.005)	−0.008 (0.007)	−0.008 (0.007)	−0.005 (0.006)	−0.006 (0.004)
GDP	1.523^*** (0.322)	1.270^*** (0.245)	1.702^*** (0.305)	1.819^*** (0.404)	1.660^*** (0.354)	1.315^*** (0.281)
CC	0.002 (0.004)	0.003 (0.005)
REM × CC		0.223^** (0.098)
PS			−0.034 (0.103)	−0.218 (0.297)
REM × PS				−0.037 (0.079)
RQ					0.081 (0.176)	−0.194 (0.168)
REM × RQ						−0.067 (0.083)

Notes: The Hausman test with a p-value greater than 5% informed the choice of PMG over the MG estimator; SEs in parentheses; Total observations (N) are 357.

Source: Author calculations.

*** p < 0.01

** p < 0.05

* p < 0.1.

CC, control of corruption; DIR, deposit interest rate; ECT, error correction term; FDI, foreign direct investment; GDP, gross domestic product; MG, mean group; PMG, pooled mean group; PS, political stability; RQ, regulatory quality; SEs, standard errors.

Table 14

Individual governance quality indicators and savings

	(1)	(2)	(3)	(4)	(5)	(6)
	RL	RL	GE	GE	VA	VA
Long-run
Remittances (REM)	0.010 (0.027)	0.036 (0.029)	−0.033 (0.029)	−0.086^*** (0.031)	0.088^*** (0.026)	0.088^*** (0.023)
Foreign Aid	0.082^*** (0.021)	0.071^*** (0.020)	0.018^* (0.010)	0.021^*** (0.008)	0.020 (0.015)	0.007 (0.013)
FDI	−0.155^*** (0.024)	−0.126^*** (0.023)	−0.153^*** (0.023)	−0.134^*** (0.024)	−0.023 (0.020)	−0.036^** (0.018)
DIR	−0.000 (0.003)	−0.002 (0.003)	0.002 (0.004)	0.005 (0.004)	0.000 (0.003)	0.002 (0.003)
IR	0.001 (0.003)	0.002 (0.003)	0.004 (0.003)	0.009^*** (0.003)	0.005^* (0.003)	0.001 (0.003)
GDP	1.112^*** (0.048)	1.049^*** (0.048)	1.147^*** (0.048)	1.244^*** (0.046)	0.943^*** (0.047)	0.928^*** (0.040)
RL	0.013^*** (0.002)	0.014^*** (0.002)
REM × RL		−0.020 (0.019)
GE			−0.338^*** (0.067)	−0.484^*** (0.084)
REM × GE				0.006 (0.028)
VA					0.036 (0.063)	0.021 (0.063)
REM × VA						−0.070^*** (0.016)
Speed of adjustment
ECT	−0.370^*** (0.080)	−0.383^*** (0.078)	−0.408^*** (0.094)	−0.400^*** (0.110)	−0.459^*** (0.077)	−0.486^*** (0.084)
Short-run
Remittances (REM)	0.223^** (0.092)	0.103 (0.127)	0.178^* (0.095)	0.181^* (0.107)	0.263^*** (0.095)	0.335^** (0.130)
Foreign Aid	−0.016 (0.030)	−0.016 (0.031)	0.009 (0.029)	0.017 (0.027)	0.006 (0.020)	0.003 (0.017)
FDI	0.077 (0.070)	0.065 (0.066)	0.084 (0.061)	0.074 (0.055)	0.040 (0.039)	0.031 (0.045)
DIR	0.034^* (0.020)	0.031 (0.020)	0.039^* (0.022)	0.038^* (0.023)	0.028 (0.020)	0.030 (0.021)
IR	−0.011^* (0.006)	−0.011^* (0.006)	−0.009^* (0.005)	−0.012^** (0.005)	−0.008^** (0.004)	−0.007^* (0.004)
GDP	1.568^*** (0.451)	1.574^*** (0.473)	1.476^*** (0.401)	1.544^*** (0.400)	1.192^*** (0.337)	1.386^*** (0.384)
RL	0.002 (0.006)	0.001 (0.006)
REM × RL		−0.188^** (0.084)
GE			0.177 (0.143)	−0.207 (0.241)
REM × GE				0.085 (0.131)
VA					0.178^** (0.074)	0.018 (0.210)
REM × VA						−0.162 (0.131)

Notes: The Hausman test with a p-value greater than 5% informed the choice of PMG over the MG estimator; SEs in parentheses; Total observations (N) are 357.

Source: Author calculations.

*** p < 0.01

** p < 0.05

* p < 0.1.

DIR, deposit interest rate; ECT, error correction term; FDI, Foreign Direct Investment; GDP, gross domestic product; GE, government effectiveness; IR, inflation rate; MG, mean group; PMG, pooled mean group; RL, rule of law; SEs, standard errors; VA, voice and accountability.

Table 15

Interaction effects of foreign capital and macroeconomic environment on savings

	(1)	(2)	(3)
	REM × AID	REM × FDI	REM × INF
Long-run
Remittances (REM)	0.789^*** (0.068)	0.559^*** (0.048)	0.830^*** (0.062)
Foreign aid (AID)	−0.175^*** (0.028)	−0.082^*** (0.031)	−0.112^*** (0.030)
FDI	0.015 (0.026)	0.269^*** (0.021)	0.112^*** (0.025)
DIR	−0.018^*** (0.005)	−0.033^*** (0.005)	−0.047^*** (0.007)
Inflation rate (INF)	0.011^** (0.005)	0.023^*** (0.005)	−0.011 (0.008)
GDP	0.117^*** (0.009)	0.108^*** (0.009)	0.065^*** (0.010)
REM × AID	0.051^*** (0.014)
REM × FDI		0.098^*** (0.010)
REM × INF			−0.0425^*** (0.006)
Speed of adjustment
ECT	−0.233^*** (0.038)	−0.252^*** (0.047)	−0.248^*** (0.047)
Short-run
Remittances	0.002 (0.163)	0.292^* (0.171)	0.066 (0.127)
Foreign aid	0.086 (0.066)	0.024 (0.021)	0.042^*** (0.016)
Inward FDI	0.030 (0.035)	0.125 (0.096)	0.015 (0.025)
DIR	0.025^* (0.015)	0.034 (0.024)	0.016 (0.011)
IR	−0.012^* (0.007)	−0.010^** (0.005)	−0.073 (0.054)
GDP	0.009^** (0.004)	0.006 (0.004)	0.011^*** (0.004)
REM × AID	−0.069 (0.056)
REM × FDI		−0.036 (0.053)
REM × INF			−0.008 (0.022)
Observations	357	357	357

Notes: The Hausman test with a p-value greater than 5% informed the choice of PMG over the MG estimator; SEs in parentheses.

Source: Author calculations.

*** p < 0.01

** p < 0.05

* p < 0.1.

DIR, deposit interest rate; ECT, error correction term; FDI, foreign direct investment; GDP, gross domestic product; IR, inflation rate; MG, mean group; PMG, pooled mean group; SEs, standard errors.

Table 16

Remittances and savings – PMG results for full sample (individual countries) – NEW

	(1) ECT Coeff.	(2) REM Coeff.	(3) AID Coeff.	(4) FDI Coeff.	(5) DIR Coeff.	(6) INF Coeff.	(7) GDP Coeff.
Argentina	−0.977^***	−0.004	0.021	0.058	−0.002	−0.028^**	−0.057
Belize	−0.074	0.374	−0.044	0.042	0.090	−0.017	5.814^*
Bolivia	−0.521^***	0.161^*	−0.074	−0.001	0.001	−0.009	2.627^***
Brazil	−0.308^***	0.224^***	0.076^***	−0.036	−0.012^***	0.000	1.027^***
Chile	−0.087	0.015	−0.005	−0.009	−0.012^*	0.004	1.285^***
Colombia	−0.158^*	−0.043	0.007	0.018	−0.004	0.006	0.916^***
Costa Rica	−0.516^***	−0.004	0.023	−0.079	0.010	−0.004	1.078^**
Dominican Republic	−0.361^***	1.050^***	0.014	0.006	−0.003	−0.002	0.276
Guatemala	−0.433^***	0.367^***	−0.007	0.030^***	0.004	−0.020^***	0.630^**
Guyana	−0.98^***	0.776	−0.205	0.674^*	0.289	−0.045	0.581
Haiti	−0.676^***	0.164	−0.000	0.024	0.026^*	−0.002	0.425
Honduras	−0.473^***	0.177	0.182^*	0.019	−0.037	0.000	1.534^*
Mexico	−0.796^***	−0.215^**	−0.010	−0.029	0.009	−0.005	0.453^**
Nicaragua	0.048	0.814^**	0.158^*	0.051	−0.028	−0.003	2.007^***
Panama	−0.251^**	−0.078^*	−0.016	−0.013	0.076^***	0.012	1.583^***
Paraguay	−0.590^***	−0.209^*	−0.031	0.004	0.027^***	−0.005	0.873^***
Peru	−0.360^***	−0.133	0.001	0.031^*	0.033^***	−0.011^**	1.321^***
Long-run
N=357		0.080^***	0.012	−0.044^*	0.001	0.003	0.958^***

Notes: The Hausman test (not shown here) with a p-value greater than 5% informed the choice of PMG over the MG estimator; MG results are available on request; GDP is GDP per capita income; SEs not shown.

Source: Author's computations.

*** p < 0.01

** p < 0.05

* p < 0.1.

AID, foreign aid; Coeff., coefficient; DIR, deposit interest rate; ECT, error correction term; FDI, foreign direct investment; GDP, gross domestic product, INF inflation; MG, mean group; PMG, pooled mean group; SEs, standard errors.

References

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Articles in this issue

DOI: https://doi.org/10.2478/izajodm-2022-0007 | Journal eISSN: 2520-1786

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Language: English

Accepted on: Apr 5, 2022

Published online: Aug 9, 2022

Published in print: Jan 1, 2022

Published by: Sciendo

In partnership with: Paradigm Publishing Services

Keywords:

remittances,

savings,

finance,

institutions,

LAC

JEL:

E21,

O11,

O16,

F21,

F22

Related subjects:

Business and economics,

Mathematics and statistics for economists,

Econometrics

© 2022 John Bosco Nnyanzi, Nicholas Kilimani, John Bosco Oryema, published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 License.

Volume 13 (2022): Issue 1 (January 2022)