Remittances, Corruption, and Human Development in Latin America
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Remittances, Corruption, and Human Development in Latin America Karla Borja 1 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract International private transfers from immigrant workers to families and friends have surged in Latin America. These transfers, also known as remittances, grew from a mere US$5 billion in 1990 to US$74.3 billion in 2016, supplementing the income of millions of families in the region. Particularly, remittances can contribute to human development by lifting large populations out of extreme poverty and by enabling better housing, education, and health. However, corruption and weak institutional environments can severely reduce the effectiveness of remittances on the path of development. For instance, remittance recipient households could be discouraged to use these foreign funds to acquire assets due to the cumbersome and corrupt process to legalize property. Using a panel of 26 Latin American and the Caribbean countries over the period of 1985–2016, this study investigates the effects of remittances and corruption on five development indicators. We find that remittances do significantly affect human capital indicators, and more so among countries fighting corruption. Keywords Remittances . Corruption . Human development . Latin America JEL Classification F24 . I32 . J24 . O15
Introduction Relative to other regions, Latin America and the Caribbean (LAC) has experienced an unprecedented increase in remittances, namely, the international money transfers from immigrant workers back to their home countries. As observed in Table 1, these inflows increased from an average of US$4.19 billion in 1986–1990 to US$61.99 billion in 2011– 2015. Compared to other regions in the world, the amount of remittances to LAC is the
* Karla Borja [email protected]
1
Department: Economics, The University of Tampa, 401 W. Kennedy Blvd., Box O, Tampa, FL 33606, USA
Studies in Comparative International Development Table 1 Remittances by region 1986–1990 1991–1995 1996–2000 2001–2005 2006–2010 2011–2015 US$, billions 2.69
5.61
13.22
28.69
44.31
Latin America & Caribbean 4.19
East Asia
9.57
16.20
35.95
58.13
68.84 61.99
Sub-Saharan Africa
1.56
2.36
4.23
8.93
26.95
29.05
1.74
US$, per capita 3.36
7.44
15.40
22.88
34.31
Latin America & Caribbean 11.14
East Asia
23.15
36.01
74.19
112.29
112.79
Sub-Saharan Africa
4.26
6.67
12.35
32.56
30.62
3.25
Author’s calculations using 26 LAC countries, 23 East Asian countries, and 45 Sub-Saharan Africa countries. The data is from the World Bank Development Indicators. It excludes high-income countries
largest throughout most of the periods under observation. On average, each citizen in the LAC region received US$112.79 remittances in 2011–2015. This value is more than threefold the remittances per capita received in East Asia (US$34.31) and Sub-Saharan Africa (US$30.62). Figure 1 corroborates the relevance of remittances in the region. Jamaica received US$845 remittances per person in 2016, followed by Dominica with US
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