Impact of remittance inflows on trade balance in developing countries

Abstract

Remittances have been fastly increasing in developing world over the past decades, however, there is only a few evidence about the relationship between remittance inflows on the trade balance in the recipient countries. Our paper investigates the effect of remittance inflows on trade balance with a sample including 17 countries in the Asia-Pacific region in the period 1980-2015, which now is the largest recipient group compares others but there is no study in the region-level. The estimated results of the OLS, 2-SLS and PGMM regressions also strongly indicated a new evidence that remittance inflows had a negative effect on the trade balance of the countries in the sample. Furthermore, our results confirmed that the annual GDP per capita growth negatively affected on the trade balance which implies that the growth of income maybe leads to rising the imports values and imbalance in international trade of countries. However, the impact of exchange rate on the trade balance was a positive one in the case of the Asia-Pacific region. Our paper has provided new evidence which could help the policymakers in order to have some solutions to enhance the efficiency of remittance inflows to the economies in the future.