Abstract
ABSTRACT. This paper’s purpose is to evaluate how remittances compare to other sources of aid, namely foreign direct investment (FDI) and official developmental assistance (ODA), in its effect on the Human Development Index (HDI) of countries. For this purpose, a fixed-effects annual panel data estimation procedure for the 2000 to 2016 period, on 18 Latin American countries, is used to estimate the impact of remittances on HDI relative to the aforementioned sources of capital. The results suggest that the impact of remittances on human development indicators is negative. FDI and ODA are found to be statistically insignificant and to have no impact on HDI. Human capital indicators (education and health expenditure) are found to have a larger, and positive impact on HDI than remittances. The results indicate that remittances are not conductive to long-term economic development as they do not expand people’s capabilities.
