The purpose of this paper is to examine the predictability of remittances in individual developing countries. It achieves this objective by testing for mean reversion (i.e. stationarity) in the monthly remittance series reported to the World Bank by 21 developing countries.
Unit root tests on remittance time series are undertaken using three tests – the augmented Dickey-Fuller test, the Phillip-Peron test and the Kwiatkowshi, Phillips, Schmidt and Shin test. Stationarity of series in levels would indicate mean reversion and predictability of remittances.
The paper finds significant evidence of mean reversion and hence predictability in remittance inflows in 17 developing countries.
Remittance inflows, which have become an important source of external finance for many developing countries, are not random flows but a stable and predictable stream of financial flows.
Prior research has focused on volatility of remittances in comparison with other capital flows and then inferred stability from them having lower volatility. Using available monthly data, this paper is the first to directly test for mean reversion and hence predictability of remittances.
Makina, D. (2014), "Mean reversion and predictability of remittances: Evidence from selected developing countries", International Journal of Social Economics, Vol. 41 No. 12, pp. 1209-1219. https://doi.org/10.1108/IJSE-02-2014-0038Download as .RIS
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