The Role of Remittances on Economic Growth: An Empirical Investigation Of 12 CEE Countries

Abstract

This study investigates the role of remittances on economic growth in Central and Eastern European (CEE) countries. The main concern of CEE countries after the collapse of Communism has been to develop strategies for increasing their standard of living to the level of Western countries. Economic growth experienced after 1991 has been impressive for these countries. Factors that have influenced economic growth in developing countries vary from capital investment, to labor surplus, technological change, trade, foreign aid, foreign direct investment, research and development, and institutional factors. This paper’s main objective is to examine the impact of remittances on economic growth in 12 CEE developing countries[1] using balanced panel data covering the period from 1996?2010. We do this by using a fixed-effects model with heteroscedasticity corrected standard errors. We find that remittances have had negative effects on growth in this area for the period analyzed. Thus, an increase in remittances by 10% decreases the output by about 0.9%.

[1] Albania, Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Lithuania, Macedonia, Poland, Romania, Slovakia, and Slovenia.