Differential Impacts Of Foreign Capital And Remittance Inflows On Domestic Savings In The Developing Countries PDF Download

This thesis examines three issues relating to the role of foreign capital inflows in the process of economic development: the differential impacts of foreign capital inflows and remittances on domestic savings, the implications of paradigm shifts in global geo-politics on bilateral aid, and the crowding-out effect of humanitarian aid on development aid. The issues are addressed in three self-contained essays, which are enveloped in a stage-setting introductory chapter and a concluding chapter which summarises the key findings. The essays are mainly empirical, but the analysis is well informed by the relevant analytical literature and is based on 'state-of-the-art' econometric techniques. The first paper investigates the differential impacts of foreign capital inflows (FCIs) and workers' remittances on domestic savings, with FCIs disaggregated into foreign direct investment (FDI), portfolio investment and foreign aid. The analysis is undertaken within the standard lifecycle framework using panel dataset for 63 developing countries for the period 1971-2010. The conventional homogeneous panel estimations suggest that foreign aid and remittances have a significant crowding-out impact on domestic savings, with remittances having a stronger effect. However, according to the results based on the Common Correlated Effects Mean Group (CCEMG) estimator, which allows for parameter heterogeneity and cross sectional dependence, only remittances crowd out domestic savings and the impact of FDI, portfolio inflow and foreign aid is statistically insignificant. The key inference of the paper is that ignoring parameter heterogeneity and cross sectional dependence in panel data analysis can yield biased and inconsistent estimates. The second paper examines the determinants of bilateral aid, with a specific focus on the implications of paradigm shifts in the global geo-politics from the Cold War to the global war on terror (GWOT). The analysis is based on a newly constructed panel dataset covering bilateral aid flows from 23 OECD countries to 126 developing countries for the period 1971-2010. The econometric analysis is undertaken within the augmented gravity modelling framework using the Hausman-Taylor estimator. The findings suggest that the impact of aid inertia, Cold War-related consideration and population size remain significant throughout the entire period, but the magnitude of the impact diminished over time. The recipient's economic growth, the donor's commercial interest, colonial ties and proximity have continued to remain important determinants. Aid has been used as a significant counter-terrorism tool during the GWOT regime. Recipient needs have also received greater attention during this period. The third paper examines whether humanitarian aid crowds out development aid using a newly constructed panel dataset for 23 OECD-DAC donor countries and 117 recipient countries for the period 2000-2011. The country programmable aid, which best reflects the actual amount of aid transfer from donor to recipient countries, is used as the measure for development aid. The econometric analysis is undertaken within the standard gravity modelling framework using the Hausman-Taylor approach as the preferred estimation method. The findings suggest that humanitarian aid crowds in, rather than crowds out, development aid. The upshot is that, contrary to the popular perception, disaster-proneness has a positive overall impact on development aid.