Do remittances not promote growth? : a bias-adjusted three-step mixture-of-regressions

This paper re-examines the impact of remittance inflows on growth using
data for developing countries over the period 1970-2010. The paper seeks
to understand why it has been so difficult to find a positive impact of
remittances on growth despite the growing amount of remittances in many
developing countries and the different studies that have emphasized the
positive effect of remittances on poverty and inequality. We relax the
hypothesis that all countries follow the same unique growth regime and
test whether the impact of remittances on growth depends on the growth
regime to which a country belongs. We apply the newly bias-adjusted
three-step finite mixture approach, which incorporates corrections into
the different steps of the estimation. We find that our data are best
described by an econometric model with two different growth regimes: one
in which remittances have a positive and significant impact on growth
and another in which the effect of remittances is insignificant. The
analysis of the determinants of the probability of being in the
remittances growth-enhancing regime shows that an increase in the level
of financial development decreases the probability of a country being in
this growth regime, while being a Sub-Saharan African country increases
this probability.