Remittances, FDI and economic growth: the case of South-East European countries

ABSTRACT

South-East European countries rely heavily on remittances and FDI as external sources of financing. Hence, an investigation of the behaviour of remittances and FDI during the business cycle and their impact on economic growth is of crucial importance. To achieve this objective, we first analyse the cyclical nature of remittances and FDI flows in Albania, Bosnia and Herzegovina, Croatia, Montenegro, the Republic of North Macedonia, and Serbia (SEE6) during their business cycles in the 2008q1-2021q2 period. Second, we investigate the causal link among these variables, and find out that although at the aggregate level remittances and FDI move synchronously and in the same direction as the business cycle, there are considerable variations across countries. Following Dumitrescu-Hurlin Panel Granger causality test, we find that for most SEE6 there is a bidirectional causal relationship between remittances and economic growth, i.e. economic growth is caused by remittances, and GDP growth also stimulates remittances.

KEYWORDS:

• Remittances
• foreign direct investment
• economic growth
• Dumitrescu-Hurlin Granger panel
• South-East European countries

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. If λ is small, the estimated trend series varies closely to the actual time series and is a more volatile. A large value of λ decreases the elasticity of the trend series, causing the estimated trend to be smoother and close to a linear trend line. If λ is equal to 0, the trend component is equivalent to the original series, and if λ diverges to infinity, the trend component approaches a linear trend.