Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Journal of Globalization and Development

Ed. by Stiglitz, Joseph / Emran, M. Shahe / Guzman, Martin / Jayadev, Arjun / Ocampo, José Antonio / Rodrik, Dani

CiteScore 2018: 0.50

SCImago Journal Rank (SJR) 2018: 0.129
Source Normalized Impact per Paper (SNIP) 2018: 0.844

See all formats and pricing
More options …

Follow the Money: Remittance Responses to FDI Inflows

Michael Coon / Rebecca Neumann
Published Online: 2018-05-18 | DOI: https://doi.org/10.1515/jgd-2017-0023


Migrant networks are an important catalyst for promoting FDI flows between countries. Migrants also send increasingly large remittances to their home countries. This paper considers how these two capital flows are related, specifically examining how remittance flows respond to the amount of FDI inflows to a country. Using a panel of 118 countries over 1980–2010, we estimate a random effects model and find a positive and significant effect of FDI flows on remittances, while controlling for other standard determinants of remittance flows. We account for the potential endogeneity of FDI to remittances by utilizing a two-stage Instrumental Variables approach. These findings suggest that FDI complements remittances, rather than crowding out emigrant investment to the home countries. We find the relationship is strongest for low income countries, highlighting the importance of remittances as a source of investment capital in these countries.

Keywords: FDI flows; migrant networks; openness; remittances

JEL Classification: F21; F23; F24; F35; F63


  • Adams, R. H. 1998. “Remittances, Investment, and Rural Asset Accumulation in Pakistan.” Economic Development and Cultural Change 47 (1): 155–173.CrossrefGoogle Scholar

  • Adams, R. H. 2009. “The Determinants of International Remittances in Developing Countries.” World Development 37 (1): 93–103.CrossrefGoogle Scholar

  • Adenutsi, D. E. 2014. “Macroeconomic Determinants of Workers’ Remittances and Compensation of Employees in Sub-Saharan Africa.” The Journal of Developing Areas 48 (1): 337–360.CrossrefGoogle Scholar

  • Alesina, A., and D. Dollar. 2000. “Who Gives Foreign Aid to Whom and Why?” Journal of Economic Growth 5 (1): 33–63.CrossrefGoogle Scholar

  • Alfaro, L., A. Chanda, S. Kalemli-Ozcan, and S. Sayek. 2004. “FDI and Economic Growth: the Role of Local Financial Markets.” Journal of International Economics 64 (1):89–112.CrossrefGoogle Scholar

  • Alleyne, D., C. Kirton, G. McLeod, and M. Figueroa. 2008. “Short-Run Macroeconomic Determinants of Remittances to Jamaica: A Time Varying Parameter Approach.” Applied Economics Letters 15: 629–634.CrossrefGoogle Scholar

  • Aydas, O. T., K. Metin-Ozcan, and B. Neyapti. 2005. “Determinants of Workers’ Remittances: The Case of Turkey.” Emerging Markets and Finance 41 (3): 53–69.Google Scholar

  • Barro, R., and J.-W. Lee. 2013. “A New Data Set of Educational Attainment in the World, 1950–2010.” Journal of Development Economics 104: 184–198.CrossrefGoogle Scholar

  • Basnet, H. C., and K. P. Upadhyaya. 2014. “Do Remittances Attract Foreign direct Investment? An Empirical Investigation.” Global Economy Journal 14 (1): 1–9.CrossrefGoogle Scholar

  • Bellemare, M., T. Masaki, and T. Pepinsky. 2017. “Lagged Explanatory Variables and the Estimation of Causal Effects.” The Journal of Politics 79 (3): 949–963.CrossrefGoogle Scholar

  • Borensztein, E., J. De Gregorio, and J-W. Lee. 1998. “How Does Foreign Direct Investment Affect Economic Growth?” Journal of International Economics 45 (1): 115–135.CrossrefGoogle Scholar

  • Buch, C. M., and A. Kuckulenz. 2010. “Worker Remittances and Capital Flows to Developing Countries.” International Migration 48 (5): 89–117.CrossrefGoogle Scholar

  • Chami, R., C. Fullenkamp, and S. Jahjah. 2005. “Are Immigrant Remittance Flows a Source of Capital for Development?” IMF Staff Papers 52 (1): 55–81.Google Scholar

  • Chinn, M. D., and H. Ito. 2006. “What Matters for financial Development? Capital Controls, Institutions, and Interactions.” Journal of Development Economics 81 (1): 163–192.CrossrefGoogle Scholar

  • Choi, I. 2001. “Unit Root Tests for Panel Data.” Journal of International Money and Finance 20 (2): 249–272.CrossrefGoogle Scholar

  • Clemens, M., and T. Ogden. 2014. Migration as a Strategy for Household Finance: A Research Agenda on Remittances, Payments, and Development. Washington DC: Center for Global Development.Google Scholar

  • Coon, M. 2014. “Financial Development and the End-Use of Migrants’ Remittances.” IZA Journal of Labor & Development 3: 1–25.Google Scholar

  • Collier, P. 2013. Exodus: How Migration is Changing Our World. New York: Oxford University Press.Google Scholar

  • de Haas, H. 2010. “Migration and Development: A Theoretical Perspective.” International Migration Review 44 (1): 227–264.CrossrefGoogle Scholar

  • De Simone, G., and M. Manchin. 2012. “Outward Migration and Inward FDI: Factor Mobility Between Eastern and Western Europe.” Review of International Economics 20 (3): 600–615.CrossrefGoogle Scholar

  • El-Sakka, M., and R. McNabb. 1999. “The Macroeconomic Determinants of Emigrant Remittances.” World Development 27 (8): 1493–1502.CrossrefGoogle Scholar

  • Ezeoha, A. E. 2013. “Financial Determinants of International Remittance Flows to the Sub-Saharan African Region.” International Migration 51 (S1): 85–97.Google Scholar

  • Freund, C., and N. Spatafora. 2008. “Remittances, Transaction Costs, and Informality.” Journal of Development Economics 86: 356–366.CrossrefGoogle Scholar

  • Garcia-Fuentes, P. A., P. L. Kennedy, and G. F. Ferreira. 2016. “U.S. Foreign Direct Investment in Latin America and the Caribbean: A Case of Remittances and Market Size.” Applied Economics 48 (51): 5008–5021.CrossrefGoogle Scholar

  • Giuliano, P., and M. Ruiz-Arranz. 2009. “Remittances, Financial Development, and Growth.” Journal of Development Economics 90: 144–152.CrossrefGoogle Scholar

  • Granger, C. W. 1969. “Investigating Causal Relations by Econometric Models and Cross-spectral Methods.” Econometrica 37 (3): 424–438.CrossrefGoogle Scholar

  • Hagen-Zanker, J., and M. Siegel. 2007. The Determinants of Remittances: A Review of the Literature. Maastricht: Maastricht Graduate School of Governance.Google Scholar

  • Higgins, M., A. Hysenbegasi, and S. Pozo. 2004. “Exchange-Rate Uncertainty and Workers’ Remittances.” Applied Financial Economics 14: 403–411.CrossrefGoogle Scholar

  • Holtz-Eakin, D., W. Newey, and H. S. Rosen. 1988. “Estimating Vector Autoregressions with Panel Data.” Econometrica 56 (6): 1371–1395.CrossrefGoogle Scholar

  • Hossain, D. 2014. “Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in Developing Countries: A Dynamic Heterogeneous Panel Analysis.” Economic Record 90 (Special Issue): 102–126.CrossrefGoogle Scholar

  • Javorcik, B. S., Ç. Özden, M. Spatareanu, and C. Neagu. 2011. “Migrant Networks and Foreign Direct Investment.” Journal of Development Economics 94 (2): 231–241.CrossrefGoogle Scholar

  • Jordaan, Jacob A. 2011. “FDI, Local Sourcing, and Supportive Linkages with Domestic Suppliers: The Case of Monterrey, Mexico.” World Development 39 (4): 620–632.CrossrefGoogle Scholar

  • Kpodar, K., and M. Le Goff. 2011. “Do Remittances Reduce Aid Dependency?” IMF Working Paper WP/11/246.Google Scholar

  • Kugler, M., and O. L. Rapaport. 2013. “Migration and Cross-Border Capital Flows.” IZA Discussion Paper, No. 7548.Google Scholar

  • Leblang, D. 2010. “Familiarity Breeds Investment: Diaspora Networks and International Investment.” American Political Science Review 104 (3): 584–600.CrossrefGoogle Scholar

  • Lucas, R. E., and O. Stark. 1985. “Motivations to Remit: Evidence from Botswana.” Journal of Political Economy 93 (5): 901–918.CrossrefGoogle Scholar

  • Markusen, J. R., and A. J. Venables. 1999. “Foreign Direct Investment as a Catalyst for Industrial Development.” European Economic Review 43: 335–356.CrossrefGoogle Scholar

  • Marshall, M. G. 2016. “Major Episodes of Political Violence and Conflict Regions, 1946–2015.” Center for Systemic Peace. Retrieved from http://www.systemicpeace.org/inscrdata.html.

  • Mundaca, G. B. 2009. “Remittances, Financial Market Development, and Economic Growth: The Case of Latin America and the Caribbean.” Review of Development Economics 13 (2): 288–303.CrossrefGoogle Scholar

  • Nwaogu, U. G., and M. J. Ryan. 2015. “FDI, Foreign Aid, Remittance and Economic Growth in Developing Countries.” Review of Development Economics 19 (1): 100–115.CrossrefGoogle Scholar

  • Ramirez, M. D., and H. Sharma. 2009. “Remittances and Growth in Latin America: A Panel Unit Root and Panel Cointegration Analysis.” Economic Studies of International Development 9 (1): 5–36.Google Scholar

  • Rapaport, H., and F. Docquier. 2006. “The Economics of Migrants’ Remittances.” In Vol. 2 of Handbook of the Economics of Giving, Altruism and Reciprocity, edited by S.-C. Kolm and J. M. Ythier, 1135–1198. Amsterdam: North-Holland.Google Scholar

  • Ratha, D. 2003. “Workers’ Remittances: An Important and Stable Source of External Development Finance.” In Global Development Finance 2003 Vol 1 (Analysis and Statistical Appendix), edited by W. Bank, 157–175. Washington, DC: The World Bank.Google Scholar

  • Reed, W. 2015. “On the Practice of Lagging Variables to Avoid Simultaneity.” Oxford Bulletin of Economics and Statistics 77 (6): 897–905.CrossrefGoogle Scholar

  • Rodriguez-Montemayor, E. 2012. Diaspora Direct Investment: Policy Options for Development. Washington, DC: Inter-American Development Bank.Google Scholar

  • Selaya, P., and E. R. Sunesen. 2012. “Does Foreign Aid Increase Foreign Direct Investment?” World Development 40 (11): 2155–2176.CrossrefGoogle Scholar

  • Stock, J. H., and M. Yogo. 2005. Testing for Weak Instruments in Linear IV Regressions. Identification and Inference for Econometric Models: Essays in Honor of Thomas Rothenberg.Google Scholar

  • Terrazas, A. 2010. Diaspora Investment in Developing and Emerging Country Capital Markets: Patterns and Prospects. Washington, DC: Migration Policy Institute.Google Scholar

  • Vargas-Silva, C., and P. Huang. 2006. “Macroeconomic Determinants of Workers’ Remittances: Host Versus Home Country’s Economic Conditions.” Journal of International Trade & Economic Development 15 (1): 81–99.CrossrefGoogle Scholar

  • Wang, M., and M. C. Wong. 2011. “Inward FDI, Remittances and Out-Migration.” Applied Economics Letters 18 (15): 1405–1409.CrossrefGoogle Scholar

  • Woodruff, C., and R. Zenteno. 2007. “Migration Networks and Microenterprises in Mexico.” Journal of Development Economics 82 (2): 509–528.CrossrefGoogle Scholar

  • Wooldridge, J. 2002. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.Google Scholar

  • World Bank. 2011. Migration and Remittances Factbook. Washington, DC: The World Bank.Google Scholar

  • World Bank. 2012. World Development Indicators. Washington, DC: The World Bank.Google Scholar

  • World Bank. 2017. Remittances Prices Worldwide. Washington DC: World Bank.Google Scholar

  • Wouterse, F., and J. E. Taylor. 2008. “Migration and Income Diversification: Evidence from Burkina Faso.” World Development 36 (4): 6625–6640.Google Scholar

  • Yang, D. 2008. “International Migration, Remittances and Household Investment: Evidence from Philippine Migrants’ Exchange Rate Shocks.” Economic Journal 118 (528): 591–630.CrossrefGoogle Scholar

  • Yogo, T., and D. Mallaye. 2011. “Remittances, Foreign Direct Investment and Aid in Fragile States: Are They Complements or Substitutes?” SSRN Electronic Journal. DOI: .CrossrefGoogle Scholar

About the article

Published Online: 2018-05-18

Citation Information: Journal of Globalization and Development, Volume 8, Issue 2, 20170023, ISSN (Online) 1948-1837, DOI: https://doi.org/10.1515/jgd-2017-0023.

Export Citation

©2017 Walter de Gruyter GmbH, Berlin/Boston.Get Permission

Comments (0)

Please log in or register to comment.
Log in