Do Remittances Induce Inflation? Fresh Evidence from Developing Countries

Southern Economic Journal, Vol. 77, No. 4, pp. 914-933, July 2011

Posted: 10 Jun 2012

See all articles by Paresh Kumar Narayan

Paresh Kumar Narayan

Deakin University - School of Accounting, Economics and Finance

Seema Narayan

affiliation not provided to SSRN

Sagarika Mishra

affiliation not provided to SSRN

Date Written: 2011

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.

Suggested Citation

Narayan, Paresh Kumar and Narayan, Seema and Mishra, Sagarika, Do Remittances Induce Inflation? Fresh Evidence from Developing Countries (2011). Southern Economic Journal, Vol. 77, No. 4, pp. 914-933, July 2011 , Available at SSRN: https://ssrn.com/abstract=2080578

Paresh Kumar Narayan (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Seema Narayan

affiliation not provided to SSRN ( email )

Sagarika Mishra

affiliation not provided to SSRN

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