Credit Quality in Developing Economies: Remittances to the Rescue?
August 8, 2014
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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.
Subject: Balance of payments, Credit, Credit booms, Financial institutions, Money, Nonperforming loans, Production, Production growth, Remittances
Keywords: Credit, Credit booms, East Asia, estimate, financial stability, instrumenting remittance, macroeconomic volatility, Middle East, nonperforming loans, North Africa, NPL ratio, Production growth, remittance, remittance inflow, remittance variable, remittances, remittances trend, South Asia, stability nexus, Sub-Saharan Africa, WP
Pages:
20
Volume:
2014
DOI:
Issue:
144
Series:
Working Paper No. 2014/144
Stock No:
WPIEA2014144
ISBN:
9781498377911
ISSN:
1018-5941
