Credit Quality in Developing Economies: Remittances to the Rescue?

Author/Editor: Christian Ebeke ; Boileau Loko ; Arina Viseth
Publication Date: August 08, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper analyzes the link between remittances inflows and nonperforming loans (NPLs) in a large sample of developing countries. Theoretical transmission channels include risk coping, exchange rate and growth impacts. Panel data estimates uncover the significant role of remittance inflows in reducing the size of NPLs in recipient economies. Econometric results also indicate a stronger marginal impact of remittances in a context of high macroeconomic instability, suggesting a significant effect of remittances on the likelihood of the private sector’s credit default during shocks. These results hold even after factoring in: (i) the endogeneity of remittance inflows and, (ii) the use of an alternative estimator (panel fractional logit) aimed at dealing with bounded dependent variables.
Series: Working Paper No. 14/144
Subject(s): Remittances | Capital inflows | Bank credit | Private sector | Non-performing loans | Developing countries | Econometric models

Publication Date: August 08, 2014
ISBN/ISSN: 9781498377911/1018-5941 Format: Paper
Stock No: WPIEA2014144 Pages: 20
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