Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/155651 
Year of Publication: 
2016
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 39-2016
Publisher: 
Philipps-University Marburg, School of Business and Economics, Marburg
Abstract: 
Remittances are transfers of money by foreign workers to their home countries. These remittance flows have been considered a very important source of finance for many developing countries accounting between 5-40% of the recipient country's GDP. This paper empirically examines whether remittance flows stabilize developing countries in the aftermath of sovereign defaults. To this end, we conduct Dynamic System Generalised Method of Moments (GMM) estimation techniques by Arellano and Bover (1995) and Blundell and Bond (1998) taking into account annual data cutting across 81 countries from 1990 - 2010. We find that indeed remittances play a significant role in stabilizing a country which has defaulted on its sovereign debt. The findings of this study exhibit different results for different measures of default episodes. All in all our findings confirm yet another channel through which remittances can have a positive influence on recipient countries' economy since they support the hypothesis that the occurrence of a sovereign default spurs on an upsurge in remittances which play a stabilizing role.
Subjects: 
Remittances
Sovereign Defaults
Capital Flows
Generalised Methods of Moments
JEL: 
C23
F34
H63
Document Type: 
Working Paper

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