Credit Quality in Developing Economies: Remittances to the Rescue?

By Christian H Ebeke, Boileau Loko, Arina Viseth

August 8, 2014

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Format: Chicago

Christian H Ebeke, Boileau Loko, and Arina Viseth. Credit Quality in Developing Economies: Remittances to the Rescue?, (USA: International Monetary Fund, 2014) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the link between remittances inflows and nonperforming loans (NPLs) in a large sample of developing countries. Theoretical transmission channels include risk coping, exchange rate and growth impacts. Panel data estimates uncover the significant role of remittance inflows in reducing the size of NPLs in recipient economies. Econometric results also indicate a stronger marginal impact of remittances in a context of high macroeconomic instability, suggesting a significant effect of remittances on the likelihood of the private sector’s credit default during shocks. These results hold even after factoring in: (i) the endogeneity of remittance inflows and, (ii) the use of an alternative estimator (panel fractional logit) aimed at dealing with bounded dependent variables.

Subject: Balance of payments, Credit, Credit booms, Financial institutions, Money, Nonperforming loans, Production, Production growth, Remittances

Keywords: Credit, Credit booms, East Asia, Estimate, Financial stability, Instrumenting remittance, Macroeconomic volatility, Middle East, Nonperforming loans, North Africa, NPL ratio, Production growth, Remittance, Remittance inflow, Remittance variable, Remittances, Remittances trend, South Asia, Stability nexus, Sub-Saharan Africa, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/144
Stock No:

WPIEA2014144
ISBN:

9781498377911
ISSN:

1018-5941

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