Durga Gautam

Date of Graduation

2015

Document Type

Dissertation

Degree Type

PhD

College

College of Business and Economics

Department

Economics

Committee Chair

Feng Yao

Committee Member

Stratford Douglas

Committee Member

Arabinda Basistha

Committee Member

Andrew Young

Committee Member

Philip Michelbach

Abstract

Does the inflow of remittances affect the quality of institutions in the recipient countries? This question is important because economists have stressed that good economic institutions, particularly those in the public sector, are instrumental for economic development and growth. The literature on remittances, however, does not document a thorough analysis and compelling evidence of the relationship between these private financial transfers and institutional quality. Unlike other kinds of international capital flows, remittances inflows are not mediated by the government of recipient countries. Remittances are not taxed directly and so are not a source of revenue for the government. Then a natural question first arises, namely what mechanism explains the relationship, if any, between remittances and the quality of domestic governance? Given the substantial size and impressive growth of remittances to many developing countries, we investigate the effects of these income transfers on domestic institutions. Studies show that remittances are most likely to influence the incentives faced by households and the government. So inflows of remittances can be a potential factor to affect institutional quality through their effects on private and public investment. In this dissertation, we examine the effects of remittances on political institutions, financial inclusion, and entrepreneurial environment in the recipient countries. We use either cross-sectional or panel data depending on the particular measure of institutional quality. Although we employ both parametric and nonparametric methods, we primarily focus on recently advanced kernel regression that allows nonlinearity and heterogeneity in partial effects of remittances. The results of our empirical study provide strong evidence of a causal relationship between remittances and the quality of domestic institutions. The rise in remittances, however, is not found to have a uniform impact on institutional quality across all countries or over time.

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