Development aid, remittances inflows and wages in the manufacturing sector
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Development aid, remittances inflows and wages in the manufacturing sector Sèna Kimm Gnangnon1
© Institute for Social and Economic Change 2020
Abstract This article has considered the effect of development aid and remittances inflows on wages in the manufacturing sector of recipient economies. The empirical analysis has used a sample of 95 countries over the period 1969–2016 and relied on the two-step system generalized methods of moments. Results show for the full sample that while remittances influence positively wages (notably in remittances-dependent countries), development aid exerts a negative effect on wages. Additionally, the effects of development aid and remittances on wages depend on the prevailing real exchange rate as well as on the values of manufacturing exports. Keywords Development aid · Remittances · Wages in the manufacturing sector · Real exchange rate · Manufactured exports Mathematics Subject Classification F35 · J30 · O14
Introduction The decision to provide development aid (also referred to as the official development assistance—ODA) to developing countries dates back to the statement adopted by the Members of the United Nations General Assembly (UNGA) on 19 November 1970. In this statement, Members requested, inter alia, that each economically advanced country would increase its ODA to developing countries progressively so as to reach a minimum amount (as a net value) of 0.7% of its Gross National Product by the middle of the decade.1 This statement has been reiterated at several other important international meetings, and since then, the international community has been monitoring the implementation of this decision.
1 See the United Nations International Development Strategy for the Second United Nations Development Decade of 14 October 1970 (https://www.un.org/en/ga/search/view_doc.asp?symbol=A/RES/2626(XXV)).
* Sèna Kimm Gnangnon [email protected]; [email protected]; [email protected] 1
World Trade Organization, Rue de Lausanne 154, 1211 Geneva 21, Switzerland
13
Vol.:(0123456789)
Journal of Social and Economic Development
The keen interest in the effectiveness of development aid (notably in recipient-countries) by policymakers in both donor-countries and recipient-countries has led researchers and scholars to perform several studies on the effectiveness of development aid. One strand of this literature has looked at whether development aid inflows hinder recipient-countries’ exports, in particular their manufactured exports through the Dutch disease effect (e.g. Addison and Baliamoune-Lutz 2017; Adam and Bevan 2006; Elbadawi 1999; Laplagne et al. 2001; Li and Rowe 2007; Mongardini and Rayner 2009; Rajan and Subramanian 2011). Besides development aid flows, remittances inflows have also been considered as a major source of financing development in developing countries and are even higher in amounts than development aid flows.2 While the macroeconomic effects of development aid and remittances inflows have been the subject of an immense theoretical an
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