Does Political Instability Affect Remittance Flows?

Abstract

International remittances are an increasingly discussed topic for development economists; however, economists disagree about the motivations for remittance-sending. Additionally, there is divergence among economists about which variables determine remittance flows. This thesis examines the motivations of remittance senders from Latin America and the Caribbean (LAC), as well as from Sub-Saharan Africa (SSA) through the introduction of a political instability variable. This thesis, representing 47 nations, contains 2 panel estimations of the macroeconomic and political determinants of remittances to LAC, and SSA. Annual remittances from 1970 to 2003 for the nations in the two regions were regressed on per capita GDPs of the host and recipient nations, the real interest rate differential between the recipient and host nations, and a political instability index for the recipient nation. The panel estimation for LAC revealed a statistically significant 5% decrease in remittances per unit increase in the political instability index. The panel estimation for SSA showed 0 effect with a unit increase in the political instability index. This result was not statistically significant. The result for LAC indicated altruism as the motivation for remittance sending, while the result for SSA was inconclusive. The evidence asserts that political instability affects remittance flows to LAC, while it does not impact remittance flows to SSA.