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Remittances, Institutions, and Economic Growth in North African Countries

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Abstract

This paper seeks to investigate the causal links between remittances, economic freedom, and economic growth on a panel of four North African countries, namely, Tunisia, Morocco, Algeria, and Egypt from 1980 to 2012. Using the system generalized method of moments (GMM) in a panel data analysis, we found strong evidence of a positive relationship between remittances and economic growth. We also found that economic freedom appears to be working as a complement to remittances and, that the effect of remittances is more pronounced in the presence of the economic freedom variable. Thus, to the extent that remittances have become a major source of external development finance, policies promoting greater freedom of economic activities benefit more from the presence of remittances.

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Notes

  1. The choice of North African countries is motivated by the fact that the relationship between remittances and economic growth has been poorly examined in the literature for these countries, and that are important sources of expatriate workers.

  2. This allows us to study, in addition, the link between remittances and institutional development since it remains quite poorly debated in the literature. The better understanding of this relationship is important given the massive empirical studies focusing on the economic growth enhancing and poverty reducing impacts of institutional development.

  3. Also see Le (2011) and Dzansi (2013).

  4. There is an extensive literature on the effects of institutions on economic growth. See, among others, Acemoglu et al. (2001, 2003), Glaeser et al. (2004), and Catrinescu et al. (2009).

  5. Note that Eq. (1) can be alternatively written with the growth rate as dependent variable as: Growth i,t  = GDP i,t  − GDP i,t − 1 = α 0 + (α 1 − 1) × GDP i,t − 1 + α 2 × REM i,t  + α 3 × X i,t  + μ t  + η i  + ε i,t

    where (α 1 − 1) is the convergence coefficient.

  6. This equation has been used by Catrinescu et al. (2009) who examined the link between remittances and economic growth specifically working through the institutions of a country.

  7. See Baltagi (2008) and Roodman (2009) for an extensive discussion.

  8. The results are virtually the same when secondary enrollment is used instead of primary enrollment. Since we have more observations for the latter, we opted to include it in the estimations reported in this paper.

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Correspondence to Nahed Zghidi.

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Zghidi, N., Sghaier, I.M. & Abida, Z. Remittances, Institutions, and Economic Growth in North African Countries. J Knowl Econ 9, 804–821 (2018). https://doi.org/10.1007/s13132-016-0377-5

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