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CASE STUDY: Role of remittances in Tongan economy
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Inward remittances have been a great support to Pacific Island Countries, including Tonga. Aside from being a major source of foreign exchange earnings, they supple-ment domestic savings and real resources. This paper examines the role of remit-tances in the economic growth of Tonga’s during a 28 year period (1981-2007).
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... It is possible to find comparable results when individual countries are studied. For example, Reference [47] writes about the positive impact of remittances on Tonga's economic growth. Using dynamic data panel estimates, Reference [48] finds that remittances exert a weakly positive impact on long-term macroeconomic growth. ...
... Overall, the trends in remittances tend to be more stable than trends in development aid and may be thus considered as a more important factor that contributes to sustainable economic development. This result is in accordance with References [45,48,51], although this effect might contribute more likely to longer-term growth in countries with higher quality political and economic policies and institutions, as pointed out by References [45] or [47]. Because changes in development aid showed little correlation with changes in GDP, it appears that development aid does little to influence long-term (sustainable) economic growth based on the data studied here as pointed out by References [39][40][41]. ...
In our paper, we analyse the long-term stability and impact of remittances and development aid on sustainable economic growth in developing countries. We use two data samples from countries that were recipients of both aid and remittances in the corresponding period. First, unbalanced data from the years 1970 to 2017; that is, how countries appear in the data. Second, balanced data, where we selected the largest possible set of countries for which data exists without gaps from the years 1970–2017. This dataset consists of 57 countries for the period from 1991 to 2017. Using linear regression models, we conclude that up until the end of the 1980s, the size of aid as a share of gross domestic product (GDP) was larger than the share of remittances. After that, the situation changed and the shares of both inflows were broadly similar. The inflow of remittances was more stable than the inflow of aid and development aid did not (on the contrary to remittances) contribute positively to sustainable economic growth if we consider the entire period between 1970 and 2017. Our results suggest that a statistically significant relationship between development aid and economic growth (per capita) may be observed only in the period from 1990 to 1999. Economic growth in developing countries is negatively influenced by the uncertainty related to the flows of official development assistance (ODA) and aid in all investigated decades. In the case of the remittance flows, the increased volatility tends to contribute negatively to sustainable economic growth only when the remittance flows represent a relatively higher share of GDP.
... The remittances contribute to the optimization of consumption and a growing savings and investment capacity thus securing access to financial resources (Přívara & Trnovský, 2021;Mondal & Khanam, 2018;Stojanov, Němec, & Žídek, 2019). In addition to the growing income of households' migration and incoming remittances increase investment in social security such as in healthcare and education and infrastructure development (Jayaraman, Choong, & Kumar, 2010;Alpaslan et al., 2021). ...
The paper aims to analyse the dependence of the economic and social development of Ukraine on migration factors (human resources and remittances) in the years 2002–2020. It proves the strength of the impact of human resources outflow and remittances on the labour market (employment) and other variables capturing the level of economic and social development. Based on the calculated social and economic development composite indicators the paper detects the migration gaps in the development of the economic system and social domain depending on the human resources outflow and remittances inflow. The results of the empirical research show a positive causal relationship between social development environments and migration and a mixed impact of the migration factor on economic system.
... Furthermore, Jayaraman et al. (2018) and Ramirez and Sharma (2009), in a study of five Pacific Island countries and 23 selected LAC countries, respectively, showed that remittance inflows act as substitutes for financial sector development in enhancing growth. Likewise, a study by Jayaraman, Choong, and Kumar (2010) in Tonga showed evidence to support the substitutability hypothesis. The studies of Chen and Jayaraman (2016) and Uddin and Sjö (2013) also support the substitutability of remittances for the shallow financial systems in Fiji and Bangladesh, respectively. ...
We investigate the relationship between remittances, financial sector development, institutions, and economic growth in a panel of 15 Economic Community of West African States (ECOWAS) over the period 2000-2017. The empirical evidence is based on the Two-Stage Least Squares Instrumental Variable (2SLS-IV) estimator, which provided two main findings. First, measures of remittances themselves had negative and significant effects on economic growth in the ECOWAS sub-region. The interactive effects of remittances and measures of financial sector development promote growth in the sub-region, thus supporting the complementarity hypothesis. Second, measures of institutional quality had positive and significant effects on the growth of countries in the ECOWAS area. Meanwhile, the interactive terms of remittances and institutional quality show support for the substitutability hypothesis. Therefore, remittances substitute for the presence of weak institutions in the ECOWAS area. Based on the preceding, we suggest the need for ECOWAS countries to further broaden the roles of financial sector institutions inside the remitting process to enhance savings mobilisation and channel the remitted funds into productive and growth-enhancing activities. Moreover, policymakers in ECOWAS countries need to strengthen governance institutions, which could increase the developmental benefits of remittances.
... A few country-specific studies have documented evidence of substitutability between remittances and financial sector development. For instance, Jayaraman, Choong, and Kumar (2010) examined the role of financial sector development for the relationship between remittances and economic growth in Tonga for the period 1981-2007. Through the ARDL bounds testing approach to cointegration and Granger causality test, the results showed evidence to support the substitutability hypothesis. ...
A well-developed and efficient financial sector together with remittances can serve as a transmission mechanism to ensure well-rounded economic growth because extant literature shows that remittances alone may not be sufficient to promote the desirable level of economic growth. Therefore, this study investigated the interactive effects of remittances and financial sector development on economic growth in Nigeria for the period 1977-2017. The data for this study was obtained from the World Bank’s World Development Indicator (WDI) Database. The data were analysed using Instrumental Variable Generalised Method of Moments (IV-GMM) estimator. The findings of this study showed that remittances alone had a negatively significant effect on economic growth at 1% significance level but when interacted with financial sector development, they enhance economic growth as revealed by the positive coefficient of the interactive term which is also significant at 1% level. The study concluded that Nigeria’s economy profits from migrants’ remittances in terms of economic growth through the existence of a developed financial sector. This study recommended among other things that the interaction of remittances and financial sector development should be used as an avenue to encourage more savings from remittances by lowering transaction costs and increasing payment of deposits’ interest on remitted funds. Besides, bank financial institutions should find a better match for these savings (in terms of investment opportunities) in order to neutralise the negative effects of remittances on economic growth caused by recipients’ consumption smoothing drive.
... There have been a few studies on the Pacific, including one regional study by Browne and Mineshima, 2007 and individual country studies (Jayaraman et al, 2009(Jayaraman et al, , 2010(Jayaraman et al, and 2016 and Rao and Takirua, (2010). However, none of them focused on FSD as a contingent factor in the remittances and growth nexus. ...
Except for emergencies and for technical assistance for raising skills and institution building, foreign aid to Pacific island countries (PICs) for budgetary support has been phased out since the late 1990s. Because of the small sized domestic markets, foreign direct investment (FDI) is small and is confined to development of tourism infrastructure. On the other hand, inward remittances received from the rising number of islanders migrating overseas for work are increasing, far exceeding aid and FDI. However, influence of remittances on economic growth depends on financial sector development (FSD) for mobilizing the savings from the remittance receipts for domestic investment. This paper assesses the role of FSD in the nexus between remittances and economic growth through a panel study of five major PICs, namely Fiji, Samoa, Solomon Islands, Tonga and Vanuatu. The study findings show that the ongoing efforts for strengthening FSD have to be stepped up by focusing on financial inclusion through spread of branchless banking and promotion of information and communication technology.
... Although there has been a growing pool of studies on the remittances and growth nexus in PICs (Browne and Mineshima, 2007;Jayaraman et al., 2009Jayaraman et al., , 2010Rao and Takirua, 2010), there is no study so far either in regard to the role of financial sector development (FSD) or effects of interaction between remittances and FSD in any PIC. Viewed against the background and in the context of the ongoing efforts to promote all inclusive growth to mainstreaming the bypassed sections of the community through financial inclusion, a study on the role of FSD in the remittances-growth nexus in Pacific region is in order. ...
Amongst the three kinds of non-debt creating capital transfers, welcomed by capital-short Pacific island countries (PICs) for supplementing their limited domestic savings, remittances presently top the list, the other two being foreign aid and foreign direct investment. Remittances help poor families, reducing poverty. In the long run, however, the contribution of remittances to growth in output and economic development is contingent upon financial sector development (FSD). PICs are now fostering financial sector development by promoting greater financial inclusion. This paper seeks to assess the role of FSD in the nexus between remittances and output by undertaking an empirical study of Fiji.
... The calculated coefficient suggests that a one percent increase in remittances contributes 1.036 percent to economic growth. This outcome is consistent with the results of Chen and Jayaraman (2016) and Jayaraman, Choong, and Kumar (2010). Remittances help deprived families, supplement domestic savings, and boost economic growth course in the Fiji Islands. ...
This study empirically examined the effect of external factors on economic growth in the Republic of the Fiji Islands (the Fiji Islands). The economic analysis was conducted using the recent time series quantitative technique and annual data from 1980 to 2015. This is of significant concern because the Fiji Islands since independence have been struggling to achieve impressive and sustained growth episodes. From the analysis and economic growth viewpoint the external factors, namely imports, remittances, and foreign direct investment, are indeed important. Imports were found to have an adverse outcome on economic expansion in the long term. Furthermore, remittances and foreign direct investment positively influenced economic growth both in the long run and the short run for the Fiji Islands. The study proposes that the government should pursue appropriate policy actions to reduce imports and draw remittances and foreign direct investment to improve economic growth.
... It has regularly been asserted that benefits would be enhanced by more formalized transfers of larger quantities of remittances, enabling their use in the banking system (for example, Jayaraman et al. 2010). Governments have introduced favourable exchange rates, foreign exchange bank accounts, tax reduction and other financial instruments designed to improve the investment climate and encourage greater remittance flows. ...
n this title, the editors draw together key articles by leading scholars which investigate the significance and role of remittances in economic and social development. They examine topics including reflections on methodology, the motives and determinants of remittances, their socio-economic impacts (especially at the household level), the role of community organisations and social remittances, and the broad social and cultural impacts of remittances. Special attention is given to small island and Central Asian states, where remittances are of particular significance. The collection traces the recent historical evolution of remittances and concludes with an examination of policy implications in both sending and receiving countries. With an original and comprehensive introduction by the editors this book will be of great interest and value to both scholars and policy makers, especially at a time when remittances are widely recognised as increasingly important for development in many countries.
... Kar, Peker, and Kaplan (2008) using Turkey as a case study finds that trade liberalization, financial development and the interaction between the two have positively contributed to economic growth in the long term. Similar conclusions have been made in case of Fiji, Samoa, and Tonga when remittance inflows are considered (Jayaraman, Choong and Kumar, 2010a;2010b;). Further, financial markets and financially developed economy are vital for foreign direct investment to have any positive effect on the economic growth (Alfaro et al., 2010). ...
In this study, using bounds approach and annual data for the period 1981-2008, the short and long-run effects of remittances and trade openness on income in Vanuatu are estimated. The results show trade openness and remittances having positive and significant effects, with no significant effects from financial development (FIN), foreign direct investment (FDI), and official development aid (ODA). FDI and ODA in this sense behave somewhat differently than remittances. Therefore a greater liberalization of goods and services market in general and short-term temporary movements of people in particular to boost remittances inflows and improving the overall institutional infrastructure is put forward as priority policy measures.
In this study, we assess the relationship between migrant remittances and economic growth in Senegal. The analysis utilized on an econometric approach using the ARDL bound testing method as an estimation technique. The estimation period is from 1980 to 2018. Overall, the estimates show a negative relationship between remittances and economic growth and an insignificant effect in the long run, while the nexus between economic growth and investment is positive in the long term. This provides the prospect of a study on the analysis of the impact on the economic growth of reallocation of remittances from consumption needs to savings-investment purposes.
The saving and investment nexus as postulated by Feldstein and Horioka (FH) (19806.
Feldstein , MS and
Horioka , CY . 1980. Domestic saving and investment capital flows. Economic Journal, 90: 314–29. [CrossRef], [Web of Science ®]View all references) is revisited. The saving investment correlation for China is estimated over the periods 1952–1998 and 1952–1994, the latter culminating in a period of fixed exchange rate regime. Amongst the key results, it is found that saving and investment are correlated for China for both the period of the fixed exchange rate and the entire sample period. With high saving-investment correlation, the results suggest that the Chinese economy is in conformity with the FH hypothesis. This is a valid outcome, for in China capital mobility was fairly restricted over the 1952–1994 period as indicated by the relatively low foreign direct investment.
This paper reports estimates of the long- and short-run elasticities of residential demand for electricity in Australia using the bounds testing procedure to cointegration, within an autoregressive distributive lag framework. In the long run, we find that income and own price are the most important determinants of residential electricity demand, while temperature is significant some of the time and gas prices are insignificant. Our estimates of long-run income elasticity and price elasticity of demand are consistent with previous studies, although they are towards the lower end of existing estimates. As expected, the short-run elasticities are much smaller than the long-run elasticities, and the coefficients on the error-correction coefficients are small consistent with the fact that in the short-run energy appliances are fixed.
World Development Indicators, the World Bank's respected statistical publication presents the most current and accurate information on global development on both a national level and aggregated globally. This information allows readers to monitor the progress made toward meeting the goals endorsed by the United Nations and its member countries, the World Bank, and a host of partner organizations in September 2001 in their Millennium Development Goals. The print edition of World Development Indicators 2005 allows you to consult over 80 tables and over 800 indicators for 152 economies and 14 country groups, as well as basic indicators for a further 55 economies. There are key indicators for the latest year available, important regional data, and income group analysis. The report contains six thematic presentations of analytical commentary covering: World View, People, Environment, Economy, States and Markets, and Global Links.
This paper develops a new approach to the problem of testing the existence of a level relationship between a dependent variable and a set of regressors, when it is not known with certainty whether the underlying regressors are trend- or first-difference stationary. The proposed tests are based on standard F- and t-statistics used to test the significance of the lagged levels of the variables in a univariate equilibrium correction mechanism. The asymptotic distributions of these statistics are non-standard under the null hypothesis that there exists no level relationship, irrespective of whether the regressors are I(0) or I(1). Two sets of asymptotic critical values are provided: one when all regressors are purely I(1) and the other if they are all purely I(0). These two sets of critical values provide a band covering all possible classifications of the regressors into purely I(0), purely I(1) or mutually cointegrated. Accordingly, various bounds testing procedures are proposed. It is shown that the proposed tests are consistent, and their asymptotic distribution under the null and suitably defined local alternatives are derived. The empirical relevance of the bounds procedures is demonstrated by a re-examination of the earnings equation included in the UK Treasury macroeconometric model. Copyright © 2001 John Wiley & Sons, Ltd.
This paper This paper develops a new approach to the problem of testing the existence of a long-run level relationship between a dependent variable and a set of regressors, when it is not known with certainty whether the underlying regressors are trend- or first-difference stationary. The proposed tests are based on standard F- and t-statistics used to test the significance of the lagged levels of the variables in a first-difference regression. Two sets of asymptotic critical values are provided: one set assuming that all the regressors are I(1) and another set assuming they are all I(0). These two sets of critical values provide a band covering all possible classifications of the regressors into I(0), I(1) or mutually cointegrated. Accordingly, various bounds testing procedures are proposed. The empirical relevance of the bounds procedures is demonstrated by a re-examination of the earnings equation included in the UK Treasury macro-econometric model. This is a particularly relevant application as there is considerable doubt concerning the order of integration of variables such as the unemployment rate, union strength and the wedge between the real product wage' and the real consumption wage' that enter the earnings equation
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