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<p>Remittances serve as a vital financial lifeline for many developing countries, enhancing welfare and investment while also posing risks of moral hazard and dependency. Prior studies focused on narrow productivity measures, overlooking the broader concept of productive capacities as captured by the Productive Capacities Index (PCI), which captures absorptive capacity, efficiency, and growth potential. This study examines how government effectiveness moderates the relationship between remittance inflows and productive capacity. Using panel data from 42 developing economies (2000–2023), we find a positive correlation between remittance inflows and the PCI, suggesting that higher remittance inflows are associated with improvements in productive capacity. Furthermore, the interaction term between government effectiveness and remittance inflows reveals that government effectiveness significantly moderates and amplifies the positive effects of remittances on productive capacity. The findings underscore the importance of government effectiveness in channelling remittances toward productive development outcomes. Policymakers should focus on strengthening institutional quality and governance capacity to more effectively leverage remittance inflows for sustainable growth in remittance-dependent economies.</p>

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Assessing the impact of remittance inflows on productive capacities in developing economies: a hard pill to swallow?

  • 期刊论文

  • 发表日期：

    2026年3月14日

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  • Kirtiranjan Das,
  • Manoranjan Sahoo,
  • Sarbeswar Mohanty

摘要

Remittances serve as a vital financial lifeline for many developing countries, enhancing welfare and investment while also posing risks of moral hazard and dependency. Prior studies focused on narrow productivity measures, overlooking the broader concept of productive capacities as captured by the Productive Capacities Index (PCI), which captures absorptive capacity, efficiency, and growth potential. This study examines how government effectiveness moderates the relationship between remittance inflows and productive capacity. Using panel data from 42 developing economies (2000–2023), we find a positive correlation between remittance inflows and the PCI, suggesting that higher remittance inflows are associated with improvements in productive capacity. Furthermore, the interaction term between government effectiveness and remittance inflows reveals that government effectiveness significantly moderates and amplifies the positive effects of remittances on productive capacity. The findings underscore the importance of government effectiveness in channelling remittances toward productive development outcomes. Policymakers should focus on strengthening institutional quality and governance capacity to more effectively leverage remittance inflows for sustainable growth in remittance-dependent economies.