Impact of Foreign Capital Inflows on Domestic Savings in the Developing Countries

What is it about?

The paper examines the role of foreign capital and remittance inflows in the domestic savings of 63 developing countries for 1971–2010, paying attention to likely differential effects of FDI, portfolio investment, foreign aid and remittances by employing Pesaran’s (2006) Common Correlated Effects Mean Group estimator technique allowing for parameter heterogeneity and cross-sectional dependence. It shows that only remittances crowd out savings.

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Why is it important?

The study examines the differential impacts of foreign capital and remittance inflows on the domestic savings. In the study, we allow for parameter heterogeneity and cross-sectional dependence by employing Pesaran’s (2006) Common Correlated Effects Mean Group estimator technique to avoid the issues associated with the all conventional homogeneous panel estimates.