Institutional quality effect on remittances in MENA region

Abstract

International workers’ remittances have increased over the years to become a main source of income for developing countries. Workers’ remittances have surpassed foreign direct investment and foreign aid. They proved to be particularly resilient during the latest global crisis, unlike other capital flows that fell sharply or even turned negative especially for Middle East and North Africa (MENA) countries. Given the magnitude, and the stability of remittances, this article aims to test the effects of institutional characteristics via the composite risk index on remittances inflows in the MENA region via the Generalized Method of Moment (GMM) for a sample of 15 MENA countries over the period 1984–2011. We highlight a negative relationship between remittances and the composite risk index implying an increase of remittances when risk increases for the specific case of MENA countries. This result indicates an altruistic motivation of the MENA migrant’s decision to remit. Altruism means that the utility of the migrant depends on the income of his family in the country of origin.

Keywords:

• remittances
• composite risk
• macroeconomics determinants
• MENA
• institutional quality
• panel data
• GMM

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The following formula is used by ICRG to calculate the aggregate of composite risk: Composite risk (country X) = 0.5 (PR + FR + ER), Where: PR = Total political risk, FR = Total financial risk, ER = Total economic risk.