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Remittances, Regime Type, and Government Spending Priorities

DOI:10.1007/s12116-016-9233-7
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Malcolm R. Easton at University of California, Davis
Malcolm R. Easton
Gabriella R Montinola at University of California, Davis
Gabriella R Montinola
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Previous work suggests that remittances enable governments to reduce spending on public services and divert resources to serve their own interests. We argue this need not occur. Building on recent work which shows that the impact of remittances is contingent on the domestic environment in remittance-receiving countries, we hypothesize that (1) remittances are more likely to increase government spending on public services in democracies than in autocracies and (2) remittances are more likely to finance activities that deter political competition in autocracies than in democracies. Using a sample of 105 developing countries from 1985 through 2008, we find strong support for our hypotheses when examining the impact of remittances on public education, health, and military spending. We also provide suggestive evidence for the mechanism underpinning our results: micro-level evidence on remittance recipients’ preferences and political engagement.
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Remittances, Regime Type, and Government
Spending Priorities
Malcolm R. Easton
1
&Gabriella R. Montinola
1
Published online: 22 December 2016
#Springer Science+Business Media New York 2016
Abstract Previous work suggests that remittances enable governments to reduce
spending on public services and divert resources to serve their own interests. We argue
this need not occur. Building on recent work which shows that the impact of remit-
tances is contingent on the domestic environment in remittance-receiving countries, we
hypothesize that (1) remittances are more likely to increase government spending on
public services in democracies than in autocracies and (2) remittances are more likely to
finance activities that deter political competition in autocracies than in democracies.
Using a sample of 105 developing countries from 1985 through 2008, we find strong
support for our hypotheses when examining the impact of remittances on public
education, health, and military spending. We also provide suggestive evidence for the
mechanism underpinning our results: micro-level evidence on remittance recipients’
preferences and political engagement.
Keywords Remittances .Regime type .Government finance
Introduction
International remittances—funds that migrants send to families in their countries of
origin—have increased from $110 billion in 2000 to an estimated $583 billion in 2014
(Ratha et al. 2015, p. 3). They represent the second largest source of external financing
for many developing countries, exceeding foreign aid as well as foreign investment.
St Comp Int Dev (2017) 52:349–371
DOI 10.1007/s12116-016-9233-7
Electronic supplementary material The online version of this article (doi:10.1007/s12116-016-9233-7)
contains supplementary material, which is available to authorized users.
*Malcolm R. Easton
mreaston@ucdavis.edu
Gabriella R. Montinola
grmontinola@ucdavis.edu
1
University of California, Davis, Davis, CA, USA
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
... We contribute to a growing literature showing that although remittances bypass incumbents, they have profound implications for home countries in policies as diverse as social spending (Doyle, 2015;Easton & Montinola, 2017 ), diaspora engagement (Leblang, 2017), and debt sustainability (Chami et al., 2008). We also contribute to new research showing that country institutional characteristics may affect the constraining effects of the "impossible trinity" (Barajas, Chami, Ebeke, & Oeking, 2016;Rey, 2015Rey, , 2016. 1 The paper proceeds as follows. ...
... Through a variety of channels, remittances reduce poverty (Adams & Page, 2005;Fajnzylber & López, 2008;World Bank, 2006), making it less pressing overall for governments to invest in social policies as recipients' autonomy from the state increases (McMann, 2006). Ahmed (2012Ahmed ( , 2013 and Easton & Montinola (2017) document that as a result of the substitution effect of remittances, autocracies that receive remittances spend less on social transfers and more on patronage and military spending. 5 Doyle (2015) shows that Latin American governments have reduced social spending as a result of remittances, partly due to the change in preferences for redistribution among remittance recipients, away from higher taxation. ...
Remittances, Monetary Institutions, and Autocracies
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  • Aug 2019
How do remittances affect the choice of exchange rate regimes? Previous research shows that remittances, by easing the "impossible trinity", increase the probability of governments adopting fixed exchange rates. However, that research overlooks the conditioning effect of monetary and political institutions. We argue that remittances, by altering recipient governments' incentives to use monetary policy counter-cyclically, make central bank independence a credible anti-inflationary tool in less credible regimes; that is, autocracies. Thus, autocracies that receive remittances do not need to rely on fixed exchange rates. In this way, remittances open policy alternatives for developing autocracies. Statistical tests on a sample of 87 developing and transitional countries between 1980 and 2010 support our argument.
... More so, it may be the case that in good governance environment, higher remittances flow will be used to increase public spending on health and education. In authoritarian regimes, remittances may have the opposite effect (Easton and Montinola 2017;Hubert Ebeke 2012). Ratha (2011, p.14) asserts that migration in Africa has been affected by the "continent's history of conflict, coups, insurgencies, dictatorships, war, and natural disasters". ...
Harnessing remittances for the poor: the role of institutions
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This paper investigates the direct effect of institutions on poverty and explores whether the remittances and poverty link can be strengthened by institutions in Sub-Saharan Africa. The results suggest that a country characterized by sound financial development and good and stable government with systems to control corruption and attract investment will provide the enabling environment to reduce the rate, depth and severity of poverty. Such quality institutional attributes reinforce the effectiveness of international remittances in reducing poverty.
... Because they are counter-cyclical, remittances are especially beneficial during economic crises, key moments of regime vulnerability. Additionally, while remittances go directly to families, they typically free up public resources that can be redirected to social spending or the state's security forces (Ahmed 2012;Easton and Montinola 2017). In turn, these expanded state resources directly counteract any reduced dependence on state patronage. ...
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How does migration affect global patterns of political violence and protest? While political scientists have examined the links between trade and conflict, less attention has been paid to the links between migration and conflict. In this paper, we show that greater emigration reduces domestic political violence by providing exit opportunities for aggrieved citizens and economic benefits to those who remain. Emigration also reduces non-violent forms of political contestation, including protests and strikes, implying that high emigration rates can produce relatively quiescent populations. However, larger flows of emigrants to democracies can increase non-violent protest in autocracies, as exposure to freer countries spreads democratic norms and the tools of peaceful opposition. We use instrumental variables analysis to account for the endogeneity of migration flows and find robust results for a range of indicators of civil violence and protest from 1960 to 2010.
... More so, it may be the case that in good governance environment, higher remittances flow will be used to increase public spending on health and education. In authoritarian regimes, remittances may have the opposite effect (Easton and Montinola 2017;Hubert Ebeke 2012). Ratha (2011, p.14) asserts that migration in Africa has been affected by the "continent's history of conflict, coups, insurgencies, dictatorships, war, and natural disasters". ...
Harnessing remittances for the poor: the role of institutions
Article
Full-text available
This paper investigates the direct effect of institutions on poverty and explores whether the remittances and poverty link can be strengthened by institutions in Sub-Saharan Africa. The results suggest that a country characterized by sound financial development and good and stable government with systems to control corruption and attract investment will provide the enabling environment to reduce the rate, depth and severity of poverty. Such quality institutional attributes reinforce the effectiveness of international remittances in reducing poverty.
... On the one hand, source countries could benefit from migration if emigrants move abroad for educational purposes and subsequently return home (Kapur, 2014). On the other hand, financial remittances -"funds that migrants send to families in their countries of origin" (Easton and Montinola, 2017: 349)may benefit home countries. Nevertheless, these gains are neglectable for the majority of developing countries. ...
... On the one hand, source countries could benefit from migration if emigrants move abroad for educational purposes and subsequently return home (Kapur, 2014). On the other hand, financial remittances -"funds that migrants send to families in their countries of origin" (Easton and Montinola, 2017: 349)may benefit home countries. Nevertheless, these gains are neglectable for the majority of developing countries. ...
... However, Singer (2012) arrives at a different conclusion, arguing that by raising consumption, remittances lead to greater tax revenue, which in turn translates into greater government spending. Easton & Montinola (2017) bring a more nuanced perspective, arguing that remittances are in fact more likely to increase government spending in democracies, but reduce it in autocracies. All this points to a questionable, if not negative impact of remittances on governance, as well as a manipulated use of their flows. ...
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Remittances, money sent from migrant workers to their country of origin, have increased significantly over the past two decades. Their growing importance has been accompanied by a vast interest in their mechanisms and ramifications. A wide array of work focuses on how remittances are sent and to what effect. This study, however, is interested in a much less explored approach: the way remittances are regulated and what explains variation in governmental efforts to regulate. This variation is first established through the creation of a Regulation Index that looks at 46 countries. It then investigates three factors that could influence this variation: a country's dependence on remittances, state capacity and regime type. Through descriptive and statistical analysis, the study finds that dependence on remittances does not explain why a country does or doesn't regulate. Testing for state capacity does not provide convincing results, suggesting that it is not because countries can regulate that they do so. However, it appears that levels of democratization can impact levels of remittance regulation. We suspect this is because different regimes have different interests and remittances can either help or hinder their achievement.
... The control variables in our model are used by others such asDollar and Kraay 2002, Easton and Montinola 2017, Gupta et al. 2009, Ravallion 1997, and Zhunio et al. 2012. All DIs are in levels. ...
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