Remittances under siege: how democracy and militarization shape economic growth in the world's top recipient nations
Ayesha Iqbal, Min Bai, Abhishek MukherjeePurpose
This study aims to examine the differential impact of remittances, democracy index, their interaction and gross militarization index (GMI) on economic growth across top remittance-receiving lower middle-income countries (LMICs). By dividing nations into two groups based on democracy levels, the research investigates whether institutional context – particularly democratic quality – moderates the remittance–growth relationship.
Design/methodology/approach
This quantitative study analyses panel data (2006–2023) from top remittance-receiving lower middle-income nations, split into high and low democracy groups. Estimation employs POLS, Fixed Effects and Random Effects models, with Hausman test guiding selection. The model incorporates remittances, democracy, GMI and their interaction. Robustness is addressed through 2SLS for endogeneity, slope homogeneity tests (Pesaran–Yamagata) and Kao–Pedroni cointegration tests, ensuring valid, reliable empirical findings across both institutional contexts.
Findings
Key findings reveal a democracy-based divergence: remittances and democracy negatively correlate with growth in high-democracy nations but positively in low-democracy countries. The interaction term is positive in democratic settings – suggesting synergy – yet negative in weaker democracies, indicating democratization without institutional capacity disrupts remittance effectiveness. GMI shows no significant growth impact. Long-run relationships are confirmed through cointegration. Endogeneity tests (Durbin and Wu-Hausman p > 0.05) confirm no endogeneity, validating panel regression results. These findings underscore the fact that institutional context fundamentally determines whether remittances contribute to productive investment or are absorbed into consumption.
Research limitations/implications
This research contributes to institutional economics by demonstrating that democracy's moderating role in the remittance–growth nexus is contingent on institutional quality. It challenges the assumption that democracy universally enhances remittance effectiveness, revealing instead that institutional capacity determines outcomes. The introduction of GMI as a novel variable adds to militarization literature, though its insignificance warrants further investigation across diverse contexts.
Originality/value
This research contributes original empirical evidence by examining the remittance–growth relationship through an institutional lens, comparing high versus low democracy nations. It introduces GMI as a novel variable in this context, addressing a critical gap in militarization literature. The study's comparative panel approach across democracy regimes, combined with rigorous robustness checks, offers fresh insights into how political context determines remittance effectiveness, informing both theory and policy.