Credit Quality in Developing Economies: Remittances to the Rescue?
IMF Working Papers, August 8, 2014
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Bibliographic details
- Authors: Christian H Ebeke, Boileau Loko, Arina Viseth
- Published: August 8, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498377911.001
Summary and main findings
- The paper analyzes the link between remittances inflows and nonperforming loans (NPLs) in a large sample of developing countries.
- Theoretical transmission channels discussed 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 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.
- Results hold 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.
Methodology and robustness checks
- Empirical strategy: panel data estimates on a large sample of developing countries.
- Robustness approaches explicitly mentioned:
- Instrumenting/remedying endogeneity of remittance inflows.
- Alternative estimator: panel fractional logit to account for bounded dependent variables.
Policy-relevant implications
- Remittance inflows play a stabilizing role for credit quality in recipient developing economies by reducing NPLs.
- The stabilizing effect of remittances is particularly pronounced during periods of high macroeconomic instability, implying remittances can lower the likelihood of private sector credit default in shocks.