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

John Bosco Nnyanzi; Nicholas Kilimani; John Bosco Oryema

doi:10.2478/izajodm-2022-0007

Figures & Tables

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

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

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)

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

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)

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

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^***

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)

Savings and remittances (% of GDP) for selected developing regions

	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

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^***

Panel unit root tests – first and second generations

	First-generation test		Second-generation test
	MW testNo trend	MW testWith trend	CADF testNo trend	CADF testWith 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^***

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

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

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

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

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

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

Figures & Tables

Remittances and savings

Cross-sectional dependence and homogeneity tests – full sample

Individual governance indicators and savings

Cointegration test results

Individual governance quality indicators and savings

Descriptive statistics (N = 374) – original values

Westerlund (2008) cointegration test

Governance, PR, CL, and FC on savings

Savings and remittances (% of GDP) for selected developing regions

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

Panel unit root tests – first and second generations

Pesaran CD test

Interaction effects of foreign capital and macroeconomic environment on savings

Variable description and source

Pairwise correlation matrix – transformed variables

Remittance inflows to low- and middle-income regions

Paradigm

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