(Luận văn) remittances domestic investment in the east and southeast asia

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES THE HAGUE VIETNAM THE NETHERLANDS t to HO CHI MINH CITY ng ep hi n w VIETNAM- THE NETHERLANDS lo PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ad u yj th ' ' ' , p yi la an lu REMITTANCES- DOMESTIC INVESTMENT n va IN THE EAST AND SOUTHEAST ASIA ll fu A thesis submitted in partial fulfilment of the requirements for the degree of oi m MASTER OF ARTS IN DEVELOPMENT ECONOMICS z at nh z k jm ht NGUYEN THI HAl YEN vb By gm m co l HO CHI MINH CITY, NOVEMBER 2011 an Dr NGUYEN HUU DUNG Lu Academic Supervisor: CERTIFICATION t to ng ep hi "I certificate that the substance of the thesis has not already been submitted for any degree and is not currently submitted for any other degree I certify that to the best of my knowledge and help received in preparing the thesis and w source~ lo ad Signature used have been acknowledged in the thesis." n all th yj uy • ip n a lu n va Date: la Nguyen Thi Hai Yen m ll fu tz n oi z k jm ht vb gm om l.c an Lu n va r ACKNOWLEDGMENTS tn to ie gh My deepest gratitude to all persons and organizations for their support, provision of p assistance and information that made this thesis possible; My dearest thanks to my supervisor, Dr Nguyen Huu Dung, for his continuous w n support, constructive follow-up, and insightful, helpful comments; lo ad Thanks to the lecturers and staff of the project, who helped improve my knowledge th My appreciation to Dr Cao Hao Thi & Mr Duy for their assistance in econometric i uy " yj and fulfill the programme; pl techniques; n ua al Finally, I am indebted to my parents and my elder brother for their love for and n va support of me, keeping me in good condition for learning I would like to reserve the pleasure of the graduate for them I am also grateful to my close friends for their warm oi m ll fu encouragement z at nh z j ht vb k m om l.c gm Lu an n va r 11 ABSTRACT tn to ie gh Over the past decades, remittances have grown to become one of the largest p sources of external financial flows to developing countries, left ODA far behind and even exceeded FDI in some countries While it is undeniable that remittances have w n poverty-alleviating and consumption-smoothing effects on households in receiving lo ad economies, empirical questions are whether they directly impact investment and if not th yj through which channels they have positive effects on investment This thesis goes in i uy search of the answers to these questions by employing different methodologies pl including Ordinary Least Square, Fixed Effect and Generalized Method of Moments n ua al However, research scope is limited within some economies in East and South-east n va regions The results show that remittances have no direct impact on investment but when being combined other channels such as financial development and institution fu m ll Remittances are complementary to financial development in stimulating investment oi Meanwhile, relationship between remittances and institution quality is not clear Some z at nh indicators indicate remittances are complementary to institution quality in boosting investment; whereas the others are substitutionary z j ht vb Key words: Remittances, Investment, East & Southeast Asia, Financial Development, Institution Quality k m om l.c gm Lu an n va r 111 CONTENT tn to CERTIFICATION i ie gh ACKNOWLEDGMENTS ii p ABSTRACT iii CONTENT iv w n LIST OF TABLES i lo ad LIST OF ABBREVIATIONS ii th yj CHAPTER 1: INTRODUCTION i uy 1.1 Problem Statement pl 1.2 Research objectives n ua al 1.3 Research Questions n va 1.4 Research Methodology 1.5 Structure of the thesis fu m ll CHAPTER II: LITERATURE REVIEW oi 2.1 The concepts of remittance z at nh 2.2 Motivation and economic effects of remittances 2.3 Relationship between remittances and investment 10 z j ht vb 2.4 Empirical studies 14 CHAPTER III: RESEARCH METHODOLOGY 18 m k 3.1 Data and variable description 18 gm 3.1.1 Data 18 l.c 3.1.2 Description of variables ofinterest 19 om 3.2 Model specification & analytical steps 23 n va 3.3.2 Fixed Effect (FE) estimator 25 an 3.3.1 Ordinary Least Squares (OLS) estimator 24 Lu 3.3 Methods of parameter estimations 24 ~ r 3.3.3 Generalized Method of Moments (GMM) 27 3.3.4 Application of GMM estimator in the thesis corresponding to each specification 28 IV CHAPTER IV: EMPRICAL RESULTS 31 4.1 Descriptive statistics 31 tn to 4.1.1 Remittances in East and Southeast Asia 31 ie gh 4.1.2 Investment and economic growth in East and Southeast Asia 32 p 4.1.3 Financial development, openness and lending interest rate in East and Southeast Asia 32 w 4.1.4 Institution quality in East and Southeast Asia 33 n lo 4.2 Bivariate correlation of the variables of interest 34 ad 4.2.1 The relationship between remittances and variables of interest 34 th yj i uy • 4.2.2 The relationship between investment and the other variables 34 4.2.3 The relationship between financial development and other variables 36 pl n ua al 4.3 Empirical Results 37 n va 4.3 Examining the impact of remittances on domestic investment using OLS estimation technique m ll fu 4.3.2 Examining the impact of remittances on domestic investment using fixed effect (FE) estimation technique 50 oi 4.3.3 Examining the impact of remittances on domestic investment using Generalized Method of Moment (GMM) estimation technique 61 z at nh 4.4 Brief discussion about the best model 73 z CHAPTER V: CONCLUSION, RECOMMENDATION & LIMITATION 75 vb j ht 5.1 Conclusion 75 k m 5.2 Policy recommendation 78 gm 5.3 Limitation and suggestion for further study 80 l.c REFERENCE 82 om APPENDIX 88 Lu an n va r v (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia LIST OF TABLES t to ng Table 1: Variable description, Expected sign & Data Source 22 ep hi Table 2: OLS- REM 37 Table 3: OLS- REM- FD 39 w Table 4: OLS - REM - FD (M2) - INST 43 n lo Table 5: OLS- REM- FD (BANCRE)- INST 45 ad Table 6: OLS- REM- FD (PRlCRE)- INST 47 th yj Table 7: FE -REM 50 uy ip Table 8: FE - REM - FD 52 a lu la Table 9: FE - REM - FD (M2) - INST 54 Table 10: FE - REM - FD (BANCRE) - INST 56 n n va Table 11: FE -REM - FD (PRJCRE) - INST 58 m ll fu Table 12:.GMM- REM 61 Table 13: GMM- REM- FD 63 n oi Table 14: GMM- REM- FD (M2)- INST 66 tz Table 15: GMM- REM- FD (BANCRE)- INST 69 z Table 16: GMM- REM- FD (PRICRE)- INST 70 vb Table A: Descriptive statistics on interested variables without institution quality 88 ht k jm Table B: Descriptive statistics on institution quality indicators 88 gm Table C: Bivariate correlation of the variables of interest 89 om l.c an Lu n va r (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia LIST OF ABBREVIATIONS tn to ie gh Financial Development FDI Foreign Direct Investment p FD FE Fixed Effect w Gross Domestic Product lo ad GLS n GOP Generalized Least Square th Generalized Method of Moment IMF International Monetary Fund INST Institution ODA Official Development Assistance OLS Ordinary Least Square REM Remittances WB World Bank yj GMM i uy pl n ua al n va oi m ll fu z at nh z j ht vb k m om l.c gm an Lu n va r 11 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia - - - CHAPTER I: INTRODUCTION tn to ie gh This chapter will explain the reason for carrying out the thesis, its objectives and research questions In addition, a brief of methodology is also mentioned in this p part Finally, the structure of the thesis will be presented w n lo 1.1 Problem Statement: ad Rapid economic growth and sustained development are goals pursued by th yj almost governments and policy-makers Investment is a crucial motive for growth i uy and development process Investment, of course, requires capital Most of pl n ua al developing countries, unfortunately, usually encounter shortage of capital Capital source from domestic savings is rather limited due to living standard of residents n va generally is still low Therefore, attracting foreign capital flows is one of the leading m ll fu national policies for development Regarding foreign capital flows, portfolio investment is high volatile and may cause negative effects for the economy without oi appropriate and active management (Silva et al., 2009) Foreign Direct Investment z at nh (FDI) with relatively stable characteristics compared to portfolio investment usually z attracts lots of attention and interest thank to its big benefits such as capital supply, vb job creation, technology transfer, and managerial know-how FDI, however, j ht k m typically requires a physical investment as well as transparency, stability and gm soundness in political environment and macroeconomic policies in the country l.c A foreign capital flow which has recently received much interest from om economists is remittances Remittances, the amount of money transferred by Lu migrants to their families in home countries, have steadily increased since the mid- an 1980s Statistically, recorded remittances reached an estimated volume of US$206 US$328 billion, accounting for over 70% total global remittances in 2008 (see Key Indicators for Asia and the Pacific 2009) The volume of them is nearly the same (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia re latest available data shows that remittance flows to developing countries reach n va billion in 2006, compared to US$19.6 billion in 1985 (Ambrosius et al., 2008) The (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia with foreign direct investment and twice higher than official development aid that t to help them rank at the second position in term of external finance source for ng developing countries Moreover, out of non-trade foreign currency inflows, ep hi remittances are in general the most stable, least volatile (Chami et al., 2008; Global Development Finance 2003) Thanks to the characteristic of stability, these inflows w may counter negative effects caused by the falling in capital flows such as FDI, debt, n lo and equity flows in recipient countries during an economic downturn (Silva et al ad 2009) and hence consolidate macroeconomic stability (Bugamelli and Paterno, th yj 2008) uy Furthermore, m developing countries, the financial system is commonly ip a lu la underdeveloped and the economy has a low degree of monetization since they usually suffer a low ratio of credit to GDP and a low ratio of broad money supply to n typic~lly the small and micro enterprises of the informal sector find m ll fu population and n va GDP (Ambrosius et al., 2008) The authors insist: "A large proportion of the difficult to access bank credit and thus operate outside the financial sector, with low n oi capital intensity and low productivity" A recent study by Aggarwal et al (2005) tz shows that remittances promote financial development; whereas the finding of z Bettin and Zazzaro (2009) holds that these inflows play substitute for vb underdeveloped financial sector in developing countries in stimulating investment ht k jm and growth gm Remittances' impacts on poverty, education, inequality are extensively exploited; whereas research on remittances-investment nexus is still limited, leaving l.c om a big gap that needs further exploration This gap derives from a common perception that remittances mainly serve for consumption purposes, not for Lu an investment That is why this thesis would like to exploit this aspect The thesis the thesis Firstly, they are one of the largest recipients of international remittances among all developing regions in which some are in the top remittance-receiving (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia r Asian developing countries There are some reasons for choosing these regions in n va seeks to find out the impact of remittances on investment in East and Southeast (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia CHAPTER V: CONCLUSION, RECOMMENDATION & tn to LIMITATION ie gh p The chapter briefly summarizes the content of the thesis before stating drawn conclusions Then, based on those results, some recommendations are raised in w n order to better take advantage of these flows for economic development Finally, the lo ad thesis present limited points which need improving in further researches th yj 5.1 Conclusion: i uy pl The main objective of this thesis is to find the impact of remittances on n ua al domestic investment in East and Southeast Asia regions In other words, the thesis look for the answer to questions: whether remittances enhance domestic investment n va of economies in the regions and through which channels remittance inflows could m ll fu positively affect investment outlays Due to the omission of data and the lack of continuous observations for some countries within the study period of 1995-2008, oi z at nh the thesis paper uses panel data of economies representing East and Southeast Asia regions including Cambodia, China, Hong Kong, Indonesia, Korea, Malaysia, z Philippines, Thailand and Vietnam that receive significant remittances and have vb j ht available data resources The empirical study is carried out based on the data panel k m data with annual observation within the period 1995-2008 employing different gm estimation techniques: Ordinary Least Square, Fixed Effects and Generalized l.c Method of Moments The OLS estimator is a rather simple methodology but easily om encounters issues like heteroskedasticity, autocorelation endogeneity that may lead an Lu to biased coefficients The other techniques are more suitable to deal with such problems; typically Fixed Effects accounts for unobserved country effects and consider the direct impact of remittances on investment as well as roles of other 75 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia r remittances on investment is separated in steps with specific models to clearly n and other variables In each estimation methodology, analysis of the impact of va GMM Arellano and Bond (1991) addresses the potential endogeneity of remittances (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia channels in such remittances-investment nexus Specifically, the relationship tn to between remittances and investment is first examined without consideration of channels, then factors like financial development and institution are in turn added in ie gh the models to study interactions between them and remittances on investment p Furthermore, a set of control variables such as economic growth, economic w openness and lending interest rate is included in models in order to isolate the n lo effects of the variables Eventually, the empirical results of the thesis are ad summarized as follows: th yj Firstly, remittances are statistically significant but negatively assocated with i uy investment across estimation methodologies It means that remittances have no pl n ua al diryctly positive impact on investment Remittance inflows in regions of interest are generally transfered not to search for investments opportunities but to help n va migrants' family members finance the purchase of life's necessities for social m ll fu insurance purpose Remittances here may play a role of lifting people out of poverty but they not typically tum their recipients into entrepreneurs These capital oi z at nh inflows are not necessarily asscociated with an increase in domestic investment or a more efficient allocation of domestic investment (Chami et al., 2008) They may z increase saving and investment level at least for recipient households via vb remittance-used-expenditures on housing, land and even jewelry Such saving is, j ht k m however, likely to have no effects on a country's overall economic activity When gm land and houses are changed hands, for instance, the aggregate investment is l.c unchanged om Secondly, the interation of remittances and financial development are Lu positively correlated with investment regardless of the estimation methods an Whatever the measure of financial development, the marginal impact of remittance stimulating domestic investment of the economy It implies that remittances can foster investment through the channel of financial development or remittances have 76 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia r complementary role between remittances and the aggregate quantity of finance in n va flows on investment is modest but robust and positive, confirming the existence of (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia a positive effect on investment only if the domestic financial system is well- tn to developed This result supports the finding by Mundaca (2005) rather than that by Giuliano and Ruiz-Arranz (2006) on the relationship between remittances and ie gh financial development While Mundaca finds that remittances have stronger effect p on growth where financial system is rather developed since financial development w potentially leads to better use of remittances, hence boosting growth; Giuliano and n lo Ruiz-Arranz (2006) show that remittances are significantly positive with growth in ad economies where financial sectors are underdeveloped th yj Thirdly, the impact of remittances on investment through the channel of and i uy institution is not identical but varied across estimation methodologies and pl n ua al specifications subject to each institution-quality indicator Accordingly, it is hard to confirm which effect of remittances and institution on investment: complementary n va or substitutionary The interaction between remittances and institution quality on m ll fu investment is greatly statistically significant in two estimation methods: OLS and fixed effect but not in GMM This interaction is relatively large, even goes further oi beyond interaction between remittances and financial development in the first two z at nh estimators, yet it gets less significant even nil in the other GMM z Next, apart from measure M2, the other measures of financial development: vb bank credit and private credit are positively correlated with investment across j ht k m specifications This result once again supports previous theoretical and empirical gm literature suggesting financial development plays positively important role in l.c stimulating investment efficiency and hence boosting economic growth via its main om function of mobilizing and channeling financial resources for feasible projects across specifications, indicating close relationship between them Investment is 77 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia r which is stated and proved in theoretical and empirical literature n The empirical results of the thesis once again affirm this consistent correlation va alway regarded as the key instrument to growth and development of the economy an Lu Then, economic growth is entirely positively accompanied by investment (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia Next, rather different to previous findings, openness is negatively associated tn to with investment across OLS and Fixed Effect estimations and even has nil effect in GMMmethod ie gh Finally, lending rate points out its role as cost of investment via negative p association with investment across regression methods except Fixed Effect w estimator n lo ad 5.2 Policy recommendation: th yj Based on empirical results, remittances not directly lead to a higher i uy domestic investment rate, so they should not be regarded the same with other capital pl sources like FDI, ODA .in enhancing long term economic growth and development n ua al However, it is hard to deny the positive role of these inflow in alleviating poverty n va since they increase the welfare of receiving households and help them stand firm during hard time like periods of economic crisis cycle, natural disasters In such fu m ll harsh periods, the poor usually suffer most Accordingly, governments should take oi appropriate measures in order to consolidate positive impacts of remittances, z at nh especially to the poor In some countries, transferred remittances are levied taxed directly that results in unexpected consequences Volume of remittances declines, z ht vb reducing poverty-alleviating effects; or remiters move towards informal transfer jm channels, causing a significant drop in official remittances that must have been k allocated to productive projects All of actions like these will cause a large loss in gm welfare Instead of imposing direct tax on remittances, governments should apply om l.c consumption-based taxation which ensures both benefits for remittance-receiving households and income for governments' budgets as well as minimizes up It can be inferred that the more remittances flow through financial sector, the 78 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia r capital sources to productive projects better and hence pushes yields on investment n to remittances-investment nexus The financial sector helps allocate mobilized va Regression results also implies that financial development plays a positive role an Lu distortionary impacts on economic activity (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia higher return on investment is obtained Therefore, it is ensential to encourage tn to transfering remittances through formal channels, especially financial institutions by reducing related costs concerning this kind of transaction A survey conducted by ie gh World Bank (2006) points out nearly 50 percent of remittance volume goes through p informal channels since these channels supplies transfer services with much lower w costs compared to through formal ones Governments should issue policies to n lo encourage financial institutions to actively take parts in money transfer market and ad orient towards a reduction of transaction costs with the aim to attract more th yj remittances and enhance development of financial sector for better use of i uy remittances Not a small part of recipients live in rural areas where advanced pl n ua al technology such as information technology, payment system has not yet been popular This makes remittance source flowing formal channels limited More n va engaging by financial institutions in these areas will increase official remittances m ll fu and this needs supports by governments Remittances have a complex nature as they may bring positive and/or negative oi effects for recipient economies A challeng faces governments and policy-makers is z at nh how to design and implement policies with aim to promote and orient these inflows z towards yield-generating activities for long & short term benefits and concurrently vb to minimize unexpected side-effects A developed infratructure together with j ht k m qualified institutions are always prerequisite to the stable & strong growth & gm development process as it alleviates transaction costs in markets and consolidate l.c residents and investors' faith and hence induces more investment, higher returns & om more benefits Governments should make more expenditure on improvement of Lu public infrastructure and public institution to take advantage of and promote strong an points of remittances Besides, governments should cooperate with agencies to infratructure These are similar to the model Mexico applied and got significantly 79 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia r which will be used to support their home communities or to improve their country's n productive activities Migrants may set up hometown associations, raise funds va design appropriate models to encourage migrants and recipients to take part in (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia large success It is helpful if there are specific training courses or education programs for recipient communities to utilize additional income from remittances in tn to the most effective way ie gh Finally, governments also take appropriate measures to better collect data on p remittances Because there has not been yet a common criterion in classifying w components which constitute remittances in some countries Consequently, data on n lo these flows are scattered and even overlapped in categories or institution; and even ad worse these inflows are misclassified A large proportion of remittances is th yj transferred not through formal channels that causes difficulties in data collection i uy Even some types of formally-transferred-remittances are not recored Such pl weakness in data collection may lead to n ua al remittances' impacts an imprecise evaluation of n va 5.3 Limitation and suggestion for further study: fu m ll This thesis examines the impact of remittances on investment across countries oi in East and South-east regions Individual countries may have experiences that z at nh differ from the aggregate results presented here Therefore, the possibility that preciseness in cross-country analysis may be reduced is unavoidable z j ht vb The data in the thesis are extracted from balance of payments statistics (WB) which mainly records data collected through formal channels, excluding those sent m k via informal ones such as friends, relatives Accordingly, underestimating gm remittances received by households is unavoidable Using data collected based on om l.c household surveys is highly recommended since they reflect more exactly volume of remittances and hence create favorable conditions for better estimation of these n other channels through which remittances may affect investment can not be va In limited scope of the thesis, typically limited the number of observations an Lu flows' impact on investment in particular and on other aspects in general r presented In particular, these money flows may affect investment through improving heath of people, upgrading education levels Although the problem of 80 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia omitted variables is reduced given our specifications, it is imposible to eliminate the tn to possibility that omitted variables drive some of the results Furthermore, the thesis did not explore in great detail the impact of remittances corresponding to levels of ie gh financial development as well as institution development to draw more thorough p assessments w There are many indicators which proxy financial development, even some are n lo more appropriate than ones used in the thesis As we know that most of economies ad in the regions in question have bank-based financial structures, so employing th yj indexes representing microeconomic efficiency of banks, total bank assets over i uy GDP for instance, may capture more appropriately than M2; and Credit the pl n ua al fundamental function of allocating remittances to worthy investment projects Unfortunately, at the time of running regressions, such data have not yet been n va available on the webside of World Development Indicator of World Bank m ll fu Similarly, the potential limitation is the use of governance indicators as the only measure of institution quality as they have not yet totally reflected oi characteristics of institution as well as of institutional development It is likely that z at nh the empirical finding may change if employing an alternative measure of institution z quality, indexes of risk rating from the International Country Risk Guide (ICRG), vb for instance j ht k m om l.c gm an Lu n va r 81 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia REFERENCE tn to ie gh p Acosta, P., P Fajnzylber, and J H Lopez (2007) "The Impact of Remittances on Poverty and Human Capital: Evidence from Latin American Household w n Surveys", World Bank Policy Research Working Paper 4247, June 2007 lo ad Acosta, P A., and E Lartey (2009) "Remittances and the Dutch Disease" Federico th S Mandelman Federal Reserve Bank of Atlanta yj i uy Adams, R H (1998) "Remittances, 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A Panel Unit Root and Panel Cointegration Analysis", Department oi z at nh of Economics, Trinity College, Hartford Ray, T., "Financial Development and Economic Growth: A Review of Literature", www.isid.ac.inl~planning/Slides-ISI-LitReview.pdf z available at (download vb j ht date June 1th, 2011) k m Razin, A., E Sadka, T Coury (2002), "Trade openness and Investment Instability", gm National Bureau of Economic Research, Working Paper No.8827 l.c Silva, V C., S Jha, and G Sugiyarto (2009), "Remittances in Asia: Implications for W Lee (2009), "Determinants and r Working Paper WP/09/216 n va Macroeconomic Impact of Remittances in Sub-Saharan Africa", IMF an Singh, R J., M Haacker, and K Lu Economics Working Paper Series No 182 om the Fight against Poverty and the Pursuit of Economic Growth", ADB, Stark, 0., and R E.B Lucas (1988), "Migration, Remittances and the Family", Economic Development and Cultural Change, Vol 36 • 86 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia Taylor J.E (1992), "Remittances and Inequality Reconsidered: Direct, Indirect and tn to Intertemporal Effects", Journal of Policy Modelling, Vol 14, No.2, pp 187208 in Jongwanich, J., (2007) "Workers' Remittances, Economic Growth ie gh and Poverty in Developing Asia and the Pacific Countries" UNESCAP p Working Paper w Woodruff, C., and R Zenteno (2001), "Remittances and Micro-Enterprises m n lo Mexico", mimeo, University of California San Diego ad World Bank (2003), "Global Development Finance - Striving for Stability m th yj Development Finance", Washington D.C i uy World Bank & IMF (2005), "Financial Sector Assessment: A Handbook", pl n ua al Washington D.C Yang, D (2004), "International Migration, Human Capital, and Entrepreneurship: n va Evidence from Philippine Migrants' Exchange Rate Shocks", Ford School Arbor oi ' m ll fu of Public Policy Working Paper No 02-011, University of Michigan, Ann z at nh Yaffee, R (2003), "A Primer for Panel Data Analysis", Information Technology Services, New York University, Fall 2003 Edition z Ziesemer, T (2006) "Worker Remittances and Growth: The Physical and Human vb Capital Channels", UNU-MERIT, Working Paper Series #2006-020 j ht k m om l.c gm Lu an n va r • 87 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia APPENDIX t to ng Method to construct the Sargan test of over-identifying restriction: ep hi Under the null hypothesis that the over-identifying restrictions are valid, the Sargan statistic is distributed as a X(p-k), where k is the number of estimated w coefficients and p is the instrument rank The p-value may be computed using n lo "scalar pval = @chisq(J-statistic, p-k)" ad Source: Eview Users Guide II th yj Descriptive statistics uy Table A: Descriptive statistics on interested variables without institution quality INV Mean 2.55 27.28 Median 0.97 26.01 5.99 Maximum 13.73 44.55 14.20 Minimum 0.07 11.37 Std Dev 3.60 Skewness Observation 11.00 102.91 92.81 83.97 9.47 99.95 94.94 90.63 fu 128.91 BANCRE PRICRE M2 la REM a lu ip GROW OPEN LEND Items 414.09 32.15 378.00 221.81 210.42 -13.13 36.39 5.00 7.70 5.29 3.48 8.45 4.09 83.87 5.10 78.86 54.16 54.24 1.75 0.38 -1.78 1.60 1.12 1.54 0.11 0.21 117 126 126 126 125 125 125 n 5.76 va 102.78 n m ll tz n oi z vb 126 k jm ht gm Table B: Descriptive statistics on institution quality indicators Items Co Cor GovEf PoSta ReQua Rulaw Mean -0.13 0.17 -0.22 0.22 0.00 Median -0.29 0.04 -0.04 0.16 -0.27 -0.29 Maximum 1.93 1.83 1.11 1.99 1.58 0.75 Minimum -1.20 -1.28 -2.04 -0.69 -1.21 -1.72 Std Dev 0.77 0.73 0.73 0.70 0.74 0.75 Skewness 0.95 0.33 -0.44 1.00 0.31 -0.22 Observation 117 117 117 117 117 117 VoiAc l.c om -0.40 an Lu n va r 88 (Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia(Luận.văn).remittances.domestic.investment.in.the.east.and.southeast.asia 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