Do international remittances contribute to achieving the first Sustainable Development Goal (SDG1) in development economies? Empirical evidence from Pooled Mean Group (PMG) estimator.

Abstract

Eradicating extreme poverty is a fundamental objective and concern for every economy in today’s modernization epoch. Developed countries channel significant amount of financial support annually to poor economies with the core intention of improving their welfare and standard of living. Extreme poverty is also one of the most imperative target of the United Nations (UN’s) Sustainable Development Goals for Agenda 2030. What role can international remittances play in helping countries accomplish the first goal of Sustainable Development (SDG1)?

Many empirical literatures have researched this phenomenon arriving at results in favor of the optimistic developmental view of remittances on poverty mitigation. However, most studies have merely investigated either the direct or indirect impacts of remittances on poverty separately. We aim to expand on this notion by exploring both the direct and indirect empirical nexus between international remittances and poverty using the Poverty-Growth-Inequality (PGI) framework suggested by Bourguignon (2014) and the Keynesian Harrod-Domar growth model (HDM). We test for the potential relationship between international remittances and SDG1 by running a panel econometric data analysis comprising of 14 selected developing countries between the fiscal period 2000-2017. Specifically, an Autoregressive Distributed Lag (ARDL) model with Pooled Mean Group (PMG) estimator was used to capture both long-run and short-run relationships concurrently.

Major findings from the PMG estimator confirmed our hypotheses. The empirical research found evidence for both direct and indirect (via economic growth) significant nexus between international remittances and the level of poverty in the long-run. Based on the empirical findings, the conclusion reached was that, international remittances can undeniably help developing economies accomplish SDG1.