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Remittances and bond yield spreads in emerging market economies
Author(s) -
Balima Hippolyte Wenéyam,
Combes JeanLouis
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12384
Subject(s) - emerging markets , economics , bond , yield (engineering) , monetary economics , bond market , leverage (statistics) , remittance , instrumental variable , openness to experience , capital market , international economics , macroeconomics , finance , econometrics , psychology , social psychology , materials science , machine learning , computer science , metallurgy , economic growth
Abstract This paper tests whether remittances reduce bond yield spreads in emerging market economies. Drawing upon instrumental variable techniques, our paper reveals that remittance inflows significantly reduce bond yield spreads. This result is robust to different specifications, alternative instrumentation techniques, additional control variables, and the use of credit default swap spreads in place of bond spreads. In addition, we find that the effect of remittances on spreads (i) is larger in (more) poorly developed financial systems, (ii) increases with the degree of trade openness, (iii) is larger in low fiscal space regimes, and (iv) is larger in nonremittance‐dependent countries. The paper concludes that policies that improve the measurement of remittance inflows and reduce their transfer costs or that enable countries to develop securitization of remittances and diaspora bonds could help emerging market economies to leverage remittances for international capital market access.