Do Remittances Induce Inflation? Fresh Evidence from Developing Countries

Paresh Kumar Narayan · Seema Narayan · Sagarika Mishra

128 citations0/0 files storedSouthern Economic Journal

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Abstract

The goal of this article is to examine the determinants of inflation in both the short run and the long run for 54 developing countries using a panel data set covering the 1995–2004 period. Apart from the commonly used economic determinants of inflation, we model the impact of remittances and institutional variables on inflation. Using the Arellano and Bond panel dynamic estimator and the Arellano and Bover and the Blundell and Bond system generalized method of moments estimator, we find evidence that in developing countries remittances generate inflation. The effect of remittances on inflation is more pronounced in the long run. Moreover, we find that openness, debt, current account deficits, the agricultural sector, and the short‐term U.S. interest rate have a positive effect on inflation. We also find that improvements in democracy reduce inflation.

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References

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2020Remittances and economic growth: A meta-analysis 2015Reexamining the relationship between inflation and growth: Do institutions matter in developing countries?2018Institutional quality and the relationship between inflation and economic growth 2013Remittance outflows and inflation: The case of the GCC countries 2013The Effects of Remittances on Inflation: Evidence from Bangladesh

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