Evaluation of the Long-Term Stability and Impact of Remittances and Development Aid on Sustainable Economic Growth in Developing Countries
Together with colleagues from the Faculty of Economics and Administration of Masaryk University in Brno, we published an article whose main objective was to (i) compare the stability of financial flows to developing countries’ economies through remittances or official development assistance (ODA); economics.
In our paper, we analyse the long-term stability and impact of remittances and official development assistance (shortly 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 development 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 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 ODA in all investigated decades. In the case of the remittances flows, the increased volatility tends to contribute negatively to economic growth only when the remittance flows represent a relatively higher share of GDP.
In our paper we discovered (and confirmed what has long been known from the literature on the basis of another methodology) that the provision of official development aid cannot contribute to halting or reducing migratory flows and “resolving the so-called migration crisis” as it appears in political debates recently. Effective on-site development aid in developing countries is important, but poverty reduction, not population migration, should remain a key objective.