Abstract
The study examines the role of foreign capital and remittance inflows in the domestic savings of 63 developing countries for 1971-2010, paying attention to likely differential effects of FDI, portfolio investment, foreign aid and remittances. The conventional homogeneous panel estimates suggest that foreign aid and remittance flows have a significant negative impact on domestic savings. However, these techniques ignore cross-section dependence and parameter heterogeneity properties and hence yield biased and inconsistent estimates. When we allow for parameter heterogeneity and cross-sectional dependence by employing Pesaran's Common Correlated Effects Mean Group estimator technique, only remittances crowd out savings.
Original language | English |
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Pages (from-to) | 102-126 |
Number of pages | 25 |
Journal | Economic Record |
Volume | 90 |
Issue number | S1 |
DOIs | |
Publication status | Published - Jun 2014 |