The Official Development Assistance and the Remittance's Determinants: Convergence or Divergence?

ABSTRACTRemittances constitute a significant external financing source for developing countries. Nowadays, they represent the second largest external financing source for development, after foreign direct investment. However, the literature on remittances has mainly identified the impact of remittances on economic growth and the microeconomic determinants of remittances.In this work, we seek to answer different questions. First, what are the main macroeconomic determinants that may lead remittances of emigrants? Then, what is the impact of these determinants on remittances, official development assistance's flows and foreign direct investment? We will try to compare this impact to the one exercised over shipments. Finally, on the basis of this comparison we will check if remittances are correlated with other external capital flows.Keywords: Economic growth, official development assistance; remittances, foreign direct investment, developing countries.INTRODUCTION:Since the 1970s, remittances (WR) represent an increasingly important external financial source. According to the word bank reports, remittances are, today, the second largest external financial source for developing countries (ODA) after foreign direct investment (FDI). However; during the same period; the Official Development Assistance (ODA) has crossed a crisis related to a combination of several factors1. This crisis has led to the questioning of ODA fundamentals, accompanied by a sharp fall of its flows to developing countries.Burnside and Dollar (1997-2000) support the thesis that the effectiveness of ODA's impact on economic growth depends on quality in economic policies of the ODA's receiving developing countries. Thus, this work paves the way for selectivity criteria2 that should be applied to these countries.Facing this debate and the ODA flow decrease, several economists have raised the question of how to exploit external financial sources for development in order to promote economic growth in developing countries. And a renewed interest has gradually been manifested to remittances.Thus, a major part of the current literature has focused on the remittances. This part is manifested at several levels as the impact exercised by microeconomic and macroeconomic determinants of remittances. However, it is noted that both theoretical and empirical works have focused on the impact of remittances on income distribution within countries, and the determinants of remittances on the microeconomic level or the effects of migration and remittances for countries or regions.The outline of this paper is as follows: in section 1 we review the theoretical and empirical literature of remittances. In section 2 we will test the impact of determinants of remittance on the external flows. We will use a sample composed by 71 developing countries over a period of thirty years, from 1981 to 2000. The third section shows the comparison results of determinants' effects for each external capital flow. Based on this comparison, this work is to detect the presence and the sign of correlation that may exist between each external capital flows.MACROECONOMICS DETERMINANTS OF REMITTANCES AND OFFICIAL DEVELOPMENT ASSISTANCE: LITERATURE REVIEW AND ECONOMETRIC MODELS:MACROECONOMICS DETERMINANTS OF REMITTANCES: LITERATURE REVIEW:The literature on the determinants of remittances is classified into two main categories. The first is the demographic profile and the migrants' characteristics and their families. Among other things, this category focuses on the microeconomic determinants. The second category concerns macroeconomic and political variables as well as variables related to the institutional environment. In general, studies on the determinants of remittances generally lead to the fact that these remittances are driven by the need to support the families of migrant workers, rather than by investment considerations. …