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Some of the most effective public programs used in Latin America to reduce poverty and inequality have been non-contributory cash transfers. We examine country-specific characteristics that lead countries to adopt these programs over time using a state-transition spatial probit panel data model that takes into account dependence between countries’ decision to adopt these programs. Intuitively, past adoption of cash transfer programs by other countries might have an impact on the probability that a country implements this type of program. We explore alternative connectivity structures to model dependence, spatial proximity as well as connections based on population migration flows, finding out-migration as most consistent with our sample data and spatial regression specification. For our panel of 17 Latin American countries over the period 2000–2017, we find evidence of dependence between countries in the probability of adoption of conditional cash transfer programs, but no such evidence in the case of unconditional cash transfer programs.

Immigrant remittances have a broad effect on the receiving economies. We show this impact on the main macroeconomic aggregates is dependent on the policy arrangements in place that manage capital flows. We look at remittance inflows in a small open economy to examine their influence on output under alternative exchange rate regimes. Using a simple stochastic limited participation model, we are able to reproduce dynamics consistent with the empirical literature. We find that the dynamics of labor, inflation, and output are dependent on the parameterization of the utility function and on the monetary rule governing the evolution of the interest rate and in particular with respect to the response of interest rates to exchange rate movements. We find that the initial drop of output resulting from a remittances shock is similar under alternative exchange rate regimes, but the subsequent recovery of output is faster and stronger under more flexible exchange rate regimes. We provide suggestive empirical evidence from a panel Vector Autoregression specification for 17 Latin American countries that corroborates our results.

Although the recent economic expansion and redistributive fiscal policies implemented in Latin America since the turn of the century have raised the wellbeing of the population, the private monetary transfers from immigrants to their relatives back home are proving to be one of the most stable drivers of this change. This paper uses a new dataset for 18 Latin American countries covering the 2000–2013 period to examine the effectiveness of international remittances in reducing poverty and inequality. Dynamic panel data results using a number of measures for remittances indicate that increases in remittances have a negative and statistically significant impact on overall poverty and inequality in the region, even if it exacerbates moderate poverty. Such effect is robust to alternative remittances measures used to control for endogeneity concerns. In particular, remittances seem to have a stronger effect in countries receiving smaller amounts and in countries with a larger share of its population working abroad. Regional differences also affect the impact that remittances have on the wellbeing of the population, but financial development is found to have a limited impact on the effectiveness of remittances on poverty and inequality.

Remittances have become an important and reliable source of funds for many developing countries, affecting the well-being of its population and the performance of their economies. However, challeng...

Despite significant flows of Foreign Direct Investment (FDI) and the perceived benefits (i.e. in terms of economic growth and innovation of productive techniques) that this type of flows can have on the receiving economies, very little has been learned about its potential contribution to employment generation in the host countries. The difficulty in measuring the impact of FDI on employment generation stems from the fact that these flows that tend to generate higher levels of economic activity and employment can potentially also lead to employment losses that may occur from increased competition, technological improvements that make production relatively more capital intensive, or from the use of different business practices. We examine the relevance of FDI in generating employment in host countries by estimating the impact on changes in subsidiary employment caused by changes—in the level of foreign investment in such subsidiary. Using Javorcik and Sparteneau (2005) approach, we measure FDI as the change in a subsidiary's assets controlled by a given MNC from another country. We use annual data derived from the OSIRIS database to create a sample of 5,641 subsidiaries operating in 66 host countries during the 2006-2008 time period and estimate a simple labor market specification using pooled OLS regression techniques with robust standard errors to correct for cluster sampling. Our results indicate that the heralded positive impact that FDI should have on employment at the subsidiary level is not a typical occurrence, but it does exist under specific circumstances. We show that the FDI has a positive effect on subsidiary employment in host countries located in the Americas, and when FDI originates from Asian-based MNCs. We also find a positive effect on subsidiary employment for FDI in the manufacturing and mining sectors, when FDI comes from a MNC headquartered in a low- and middle-income country, and when the subsidiaries operate in low- and middle-income countries. Furthermore, the analysis shows that FDI has a positive impact on subsidiary employment generation for companies that reduce their disinvestment, and for subsidiaries operating in countries where the country-level FDI as a share of GDP is smaller. These findings suggest that countries and policymakers should take these factors into consideration when formulating policies to enhance employment opportunities in their countries through higher levels of FDI, but it is not realistic for countries with different characteristics to expect the same effect on employment from foreign investment.

This paper seeks to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth – larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics.

[Author Affiliation]Diego E Vacaflores, , , , dv13@txstate.edu[Acknowledgment]The author thanks Dennis W. Jansen for his insightful contributions and continuous guidance. I also thank the editor, Kent Kimbrough, and two anonymous referees for their valuable comments and suggestions.1. IntroductionRemittances have increased over the last several decades. International estimates of official remittance flows suggest that the total amount of worker remittances have increased to US$300 billion in 2010 (Inter-American Development Bank 2012). This increase may in part be attributed to the rapid growth of money transfer institutions, which has reduced the average transaction cost and has made them more visible. However, it may also be indicative of an actual increase in these monetary transfers due to increased migration flows, which now represent approximately 45% of net private capital flows to developing countries.The importance of remittances for remittances-receiving developing countries does not just come from their size, but mainly from its potential and actual effects on both the society and the individual. Remittances affect labor market decisions, school retention, export-sector competitiveness, and financial deepening (Funkhouser 1992; Glytsos 2002; Cox-Edwards and Ureta 2003; Amuedo-Dorantes and Pozo 2004; Chami, Fullenkamp, and Jahjah 2005; Giuliano and Ruiz-Arranz 2009). In terms of consumption, remittance flows have gone from satisfying basic needs to providing a vast array of durable goods for recipient households. They can thus potentially promote economic growth and development through higher domestic demand if motivated by altruism or through enhanced productive capacity if motivated by self-interest.Most of the literature on remittances focuses on the microeconomic implication of such flows for the sender and for the receiver of these funds. On the basis of survey data, this trend in the literature has examined the motivations to remit, such as contractual arrangements, altruism, repayment of migration costs, and so on, and the uses of these funds in the home country (e.g., for education, health care, entrepreneurial initiatives, social works, etc.). At the macro level, the literature on the impact of remittances on the recipient country is sparse but growing as researchers realize that it could have important effects on the overall economy.However, economists have overlooked the examination of the potential influence that higher levels of remittances can have on the implementation of monetary policy, and thus its understanding is still limited. Since remittances provide a secondary income to households, they would affect decisions with respect to labor supply and consumption, which can alter the effectiveness of monetary policy when this additional income is a significant portion of a household's income. Additionally, although domestic governments usually try to sterilize capital flows to sustain a given policy, the high levels of informality in some developing countries and the significant portion of remittances that continue to flow through informal channels make monetary targeting problematic. Given these potential complications, monetary policy could potentially have a differential impact depending on the remittances' share of GDP, and fluctuations in remittances can affect the amount of money in circulation and therefore economic performance. Accounting for such influences thus became imperative for stabilization policy.This study examines the potentially different impact that monetary policy can have on output depending on the relative share of remittances as a percentage of GDP and the differential effect that remittances shocks can have on the main macroeconomic aggregates when economies do not fully sterilize such inflows--channels never explored before. It builds on the theoretical model developed by Jansen, Vacaflores, and Naufal (2010), explicitly incorporating remittances in a small open economy framework, and is able to show that monetary policy has a differential effect on output depending on the relative size of these remittances. …

This study examines the impact of a remittances shock on the main macroeconomic aggregates of a small open economy. It uses a stochastic limited participation model to generate dynamics that are consistent with the empirical literature, like the increase in inflation, consumption, and leisure. However, the remittances shock generates a prolonged decline in GDP, which only diminishes when remittances are a larger percentage of GDP, the fraction of remittances directed towards investment increases, or when the fraction of labor income that remittances represent is reduced and is overturned when the persistence of the remittances shocks is shortened.

In the last couple of years we have observed a variety of tools used to stimulate the economy, from the tax rebates of 2008 to the monetary infusion to the financial institutions in 2009. At the same time loud questioning of the perceived favoritism for the financial system has emerged, with suggestions that recoveries should also include infusions to “Main Street” to propel consumption bursts that promote economic activity and growth. A simple limited participation model is developed to examine the effect of alternative distributions of monetary injections, through the financial intermediaries or through consumers, on the main macroeconomic aggregates of the small open economy. It is found that the higher the proportion of the monetary injection channeled through the consumers leads to a less vigorous recovery of output, but diminishes the negative effect on the utility of the representative household.