How important are remittances to savings? Evidence from the Latin America and the Caribbean Countries

Savings play a central role in sustainable growth of economies. The economic rationale for this assertion hinges on their capacity to provide funds required for investment, which eventually translates into capital formation, employment, and growth in the per capita gross domestic product (GDP). Seminal works by Keynes (1936); Friedman (1957); Ando and Modigliani (1963); and Duesenberry (1959), inter alia, underscore the importance of savings and develop interesting theories that link savings to other economic variables such as consumption, interest rates, and income among others. Similarly, recent works by Lucas (1988) and Romer (1986) continue the discussion by relating the accumulation of savings to economic development as well as productivity. In essence, savings rates are strongly assumed as a basis for future economic growth and development, since they play the much-needed role of supporting the world's poorest to better manage risks, step out of the poverty trap, and build a better life. Robinson (2018) observed that savings are critical for poor people's consumption smoothing, risk management, and financing of important life goals such as education and starting a business. Therefore, a low savings rate would raise serious concern for policy makers as it can imply low levels of investment, less job creation, and therefore, a lower standard of living (Gani, 2016). The key question from the foregoing analysis is: what drives savings?

The aforementioned question is not new and has certainly received much attention in recent literature, especially on account of the theoretical importance of savings to sustainable development, which is something that countries generally clamor for. Essentially, a recent decline in the savings rates as well as the widening savings–investment gap visible in both developed and developing countries has attracted serious concern and rekindled the interest of economists and researchers alike to re-examine the drivers of savings, particularly in developing countries, during the last decades (Athukorala and Sen, 2004; Baldé 2011). Nevertheless, as argued in a recent paper by Hamdar and Nouayhid (2017), the on-going debate on what catalyzes savings remains inconclusive until the present day. We concur with Deaton (1989) that there are many good reasons which indicate that factors that determine saving behavior in developing countries are likely to differ from those of developed economies. Intuitively, not all developing country regions share the same saving characteristics. Heterogeneity among countries and regions could therefore explain the divergent findings in the existing literature with regard to the drivers of savings.

In this paper, we focus on developing countries, particularly the LAC countries, to examine the saving impact of remittances. It is noted that migrant workers support their families in home countries through remittances, which boost household income and standard of living. On the supply side, Nnyanzi (2016) argues for both altruism (or risk-sharing) and self-interest (or the investment/savings) motives as coexisting in the remittance dynamics. And, in line with Grabel (1996), it is reasonable to argue that on the demand side, once the basic needs are met, migrant households could use the remainder of the received income for savings, in addition to debt repayment; purchase of consumer durables, land, and housing; small enterprise development and agriculture; and investments in education and healthcare. As remittances inflows increase in volume, a sizable amount is likely to be saved for future investment and development, since a stable flow of the same offers households an opportunity to reduce their vulnerability over time and to build assets. In theory, therefore, we would expect an increase in remittances to be followed by an increase in savings, thereby reducing the savings–investment gap characterizing developing countries.

LAC is an interesting region for the study since the region is trapped in a vicious cycle of low savings while at the same time experiencing increasing inflows of remittances (Tables 1 and 2). For example, in relation to other developing regions, viz., East Asia and Pacific (EAP), and South Asia, the LAC region appears to have the lowest savings rate, which, on average, has been trending downward for the last few decades. According to Cavallo and Serebrisky (2016), for example, LAC countries save less than 20% of their national income in relation to the high-growth countries in East Asia that save about 35% of national income. The authors observe further that LAC saves less than every other region in the world, except Sub-Saharan Africa (SSA). In support of the latter argument, Table 1 reveals that while, say, in 1985 South Asia had a savings-to-GDP ratio of 18%, lower than that of the LAC region that stood by then at 20.4%, this had by 1997 risen to 26.3% for South Asia but dropped to 17.6% in the LAC countries. Ten years later, the savings-to-GDP ratio had risen to about 31% for the South Asia region compared to a further fall to 17% in the LAC region. Likewise, the Middle East and North Africa (MENA) region performed far better that the LAC region, having progressed from a lower savings-to-GDP ratio (gross domestic savings) of 19.1% compared to the LAC region with 24.8% contribution to GDP, to an increase of 29.5% of GDP in 1997 (compared to a reduction to 19.7% in the LAC region), and then to about 32.3% in 2018 in relation to 18.7% for the LAC countries, which was a reduction from its initial levels. Overall, in terms of GDP, the LAC region saves 10%–15% less than the most dynamic countries of emerging Asia. We consider this a policy challenge that requires a deeper analysis into what drives savings.

Several studies have over time analyzed the low saving rate puzzle persistent in the LAC region (e.g., Loayza et al., 2000; Grigoli et al., 2015; Cavallo and Serebrisky 2016), with the latter particularly arguing that the challenge of a low savings rate, together with the inefficient intermediation of the little savings generated, is exacerbated by the inefficient financial system. In a region where other forms of foreign capital, particularly foreign direct investment (FDI) and foreign aid (AID), are dwindling, increasing inward remittances (see Tables 1 and 2) as an alternative source of foreign capital can constitute an important part of private savings. Certainly remittances may not substitute other sources of finance, since they are not a panacea to development issues (Keller, et al., 2018), but could instead play a complimentary role. The argument here is that the importance of remittances to home countries cannot be underestimated, especially in countries with less developed financial systems and credit-stricken households. For, it is in such an environment, as Giuliano and Ruiz-Arranz (2009) argue, that diaspora transfers could boost growth by providing an alternative source of financing investment, improving welfare of recipients, and easing liquidity constraint. In contrast, depending on the recipient households, remittances could be used for purposes other than savings to achieve these benefits. For, as noted earlier, the incentives for sending of remittances are not limited to self-interest or savings but also to altruism, solidarity, and debt payment as well as diversification of household income (Nnyanzi, 2016).

We note with curiosity that the aforementioned merits of both remittances and savings notwithstanding, a detailed review of the existing documentation reveals a relatively limited number of studies investigating migrants’ remittances and savings jointly. Nonetheless, a few available papers report mixed findings. In one strand of literature, for example, a negative remittance effect on savings is visibly traceable, such as in, inter alia, Athukorala and Sen (2004) for India; Sahoo and Dash (2013) for five Asian countries; Hossain (2014) for 63 developing countries during the period 1971–2010; Caceres and Saca (2006) for El Salvador; Morton et al. (2010) for top 20 remittances recipient countries for 2008; and Hamdar and Nouayhid (2017) in Lebanon. On the other hand, the positive influence of migrant remittances on domestic savings is reported elsewhere in Connell and Conway (2000), Baldé (2011) for 37 SSA countries, and Gani (2016) for the Asian economies, among others. Recent work by Akter (2018), however, finds no noticeable remittance effect on savings. Support for the latter can also be found in Zhu et al. (2012) for rural China. These divergences could stem from the different methodological errors and measurement and sample characteristics. Issues of endogeneity have equally received less attention in the existing analyses, which in turn affects the results. We also take interest in the proxies utilized for savings. While domestic savings appears to characterize the majority of the studies as the dependent variable, other studies adopt GS instead. Note should also be made here that country-specific as well as cross-sectional studies appear in the empirical analyses, a fact that could further explain the mixture in findings. According to Sauvant and Sachs (2009), differing sample sizes and short time series might explain the divergent findings.

In order to circumvent the aforementioned challenges, we utilize panel data, well-known for its attractive informational advantages over time-series and cross-sectional studies. For example, panel data permits use of both time-series and cross-sectional variation, thereby providing a substantially superior identification and separation of the various economic mechanisms underlying savings behavior that are often confounded in the snapshot analysis of cross-sectional data and by aggregation in time-series analysis (Börsch-Supan, 1990). Moreover, panel data allows the user to control for some types of omitted variables without observing them. Additionally, panel data offers a more heightened capacity for modeling the complexity of saving behavior than a single cross-section or time-series data can possibly allow (Hsiao, 2007). The autoregressive distributed lag (ARDL) approach that takes care of endogeneity and heterogeneity issues as well as its ability to dissect between long-run and short-run results is the selected study model in the current analysis. We focus on the LAC region in the current analysis given its position as a major migrant transfer recipient in the developing world. A glance at Table 1 reveals that apart from SSA with a percentage increase of 162.9% in remittance inflows between 2 years, 1997 and 2018, the LAC region has the highest percentage increase of 157.6%, followed by East Asia and the Pacific with 58.6% and South Asia whose remittance inflows grew by 43.6% during the same period. Table 2 reemphasizes this performance by making comparisons at a wider scale.

The evidence provided shows that remittance inflows to the region grew from as low as 2.5% in 2010 to 9.6% in 2018, which represents an increase of almost 284% between these years. In terms of GDP, we observe an increase in the GDP contribution of 1.1% in 2010 to 1.7% in 2018, suggesting an increase of almost 54.5% in growth, which is far beyond any other region's change in GDP contribution growth: 33.3% for Europe and Central Asia; 29.4% for MENA; 16.7% for SSA; and a reduction of 5% for South Asia.

Particularly notable in Table 2 is that remittances flow into LAC grew about 9.6% to $88 billion in 2018. At a country level, documented statistics (World Bank, 2019) reveal that a country like Mexico continued to receive the most remittances in the region, posting about $36 billion in 2018, up 11% over the previous year. In 2013, the country had the fourth-highest volume of remittance flows in the world, at US$21.5 billion, trailing only India, China, and the Philippines. And by 2019, the figure had risen to US$38.5 billion, leading to the third-highest position, only trailing India with US$83.1 billion, and China with US$68.4 billion (World Bank, 2020). Similarly, Colombia and Ecuador, both having most of their migrants in Spain, posted 16% and 8% growth, respectively, in 2018. Also, on their part, Guatemala, Dominican Republic, and Honduras, respectively, posted double-digit growth of 13%, 10%, and 10%, that were mainly sourced from their migrants in the United States. Further statistical evidence reveals that in the Dominican Republic, Haiti, and Nicaragua, one in every four adults receives remittances, just as it is reported that in Honduras, Paraguay, El Salvador, Guatemala, Bolivia, and Colombia, over 10% of adults receive these transfers from migrants abroad (Pugliese and Ray, 2011; Burgess, 2014).

Remarkably, already by 2013, for more than half of the countries in Latin America and the Caribbean, inward remittances were equivalent to over 5% of their GDP, whereas in Haiti, Guyana, Honduras, El Salvador, Nicaragua, Jamaica, and Guatemala, the remittance volume took over 10% of their GDP (Maldonado and Hayem, 2014). The explosion of remittance contribution to GDP in these and many other LAC countries is attributed to policies directed toward the promotion of remittance inflows to their countries. One good example includes, inter alia, an offer of incentives to attract migrant transfers into local savings and investment funds (World Bank, 2019). Consequently, millions of households in the LAC region receive remittances albeit for various purposes including but not limited to covering basic needs, education and health expenditures, and investment in housing and other durable goods, as well as for business creation and savings (Burgess, 2014; Keller et al., 2018).

It is important to emphasize here that while remittance inflows to the LAC region have exhibited a unique performance, the savings contribution to GDP is on the downward trend. Yet, as an important source of income, it could be argued that remittances act as an alternative savings mechanism for migrants back home, though counterarguments do likewise exist as we show shortly, at least in theory. Bauer and Sinning (2005) already purport that a sizeable part of the transfers consists of savings-related remittances of temporary migrants in Germany. By implication, the likelihood of remittance contribution to savings isn’t a farfetched expectation. In the present context, the paradox of the increase in remittances inflows to the LAC region, being accompanied by sharp decline in domestic saving rate, also previously observed by Caceres and Saca (2006), requires further scrutiny. While other forms of foreign capital, particularly foreign aid, and FDI, appear to have a wider coverage in the existing literature, there are limited studies especially before the 2000s regarding the impact of remittances on any macroeconomic variable, perhaps due to the relatively low GDP share of remittances inflows to developing regions in general. Since 2018 this has changed, when remittances became the largest source of foreign exchange earnings in the low- and middle-income countries (LMICs) excluding China. To be more specific, in 2018, remittances inflows to developing countries were more than thrice the size of official development assistance (ODA). Yet, FDI has equally been on a downward trend in recent years, making it possible for remittances to reach close to the level of FDI flows in 2018. In fact, statistics reveal that excluding China, remittances were significantly larger than FDI flows (World Bank, 2019). As theory would have it, huge amount of remittance inflows or foreign capital in general would aggravate balance of payments difficulties. Economic theory further concurs that under some conditions a reduction in foreign capital might lead to an increase in the domestic savings ratio and a rise in the incremental output-capital ratio (Griffin, 1978). Therefore, in theory, one ought to expect foreign capital inflow to reduce domestic savings. As to whether this happens to be the case in practice, and specifically for remittance inflows, is an empirical question. The patterns of inward remittances and savings depicted in Tables 1 and 2 raise the intriguing question of whether remittances are really important for savings in the LAC region.

The current paper aims at providing empirical evidence on the relative importance of the determinants of savings, paying particular attention to remittance inflows. In the analysis, we additionally incorporate the remittance interaction effect of institutional quality on savings. Ideally, a country experiencing poor institutional quality would likely suffer from a reduction in foreign capital, remittances inclusive. If the latter drastically drop, then it is likely that savings of the households would similarly be affected. In fact, Dunning (2002) argues that institutional factors such as good governance are becoming increasingly important determinants of foreign capital. Yet on the other hand, some studies (e.g., Bellos and Subasat, 2012a, 2012b) appear to suggest that that poor governance is a source of attraction rather than a hurdle for FDI in selected transition countries. By implication and in the context of the current study, the hypothesis that inward remittances are less important as a driver of savings if the institutional environment is not considered, is worth an exploration. For the LAC countries in particular, data on WGI show that in comparison to 1998, the region improved their scores considerably on political stability (PS), government effectiveness (GE), and control of corruption (CC), but made a significant drawback in regulatory quality (RQ) in 2011. By 2019, out of the 195 countries rated in terms of WGI, only three Latin American countries, viz., Chile, Uruguay, and Costa Rica, ranked in the top 60, whereas 13 out of the 35 countries in the region ranked among the lowest 50 countries in the world. According to Matera and Despradel (2020), the region has the worst levels of corruption in the world. This assertion is corroborated by data from Transparency International's Corruption Perceptions Index, where it is reported that countries in Latin America and the Caribbean have an average ranking of 36 compared to a score of 32 for SSA countries, where a score of 0 means “very corrupt” and 100 is “very clean”. Additionally, GE is low in most of these countries, and almost all countries show a low level of rule of law (RL).

Still, on other aspects of institutional quality, during the period under review, the region similarly witnessed a steady decline in the political rights (PR) and civil liberties (CL), as presented in the Freedom in the World (FIW) report of 2019 (Freedom House, 2019). Specifically, for 2019, apart from Antigua and Barbuda, Argentina and Ecuador, all other countries witnessed a significant deterioration in their freedom score relative to those that saw improvement. We contend that the institutional environment is crucial for the remittance role on savings. Several other remittance interaction effects of foreign capital, financial development (FD), and macroeconomic instability are also analyzed in the study for a simple justification that the environment is likely to play a key role in influencing the contribution of remittance inflows to savings.

Our contribution to the existing literature falls under several aspects. First, we generate empirical evidence on the determinants of savings by examining macro-level data focusing on the LAC region where the paradox of the coexistence of increasing remittances together with dwindling saving rate appears visible but less attended to in the existing literature. The question of whether remittances stimulate savings in the LAC region is still empirical. While a major part of the available scholarly works concentrates on the macroeconomic variables originally suggested in the traditional savings models, we augment these models to incorporate inward remittances as an explanatory variable in addition to others identified in literature. Second, besides the macroeconomic environment, the study takes into consideration the issue of institutional quality as moderating factors in the remittance–savings relationship, if any. The analysis of the complementarity or substitutability of inward remittances and the different sets of the environmental factors in the savings behavior of LAC countries are considered novel in the present study. We concur with Bjuggren et al. (2010) that while in the presence of poor institutional quality, remittances could play a substitutive role as a source of funding for investment, particularly where it is the only external capital available to entrepreneurs, its complementary role is not inadmissible. Specifically, institutional quality or even economic freedom could act as a disincentive to save, particularly where they are deemed poor, or remittance recipients are more likely to find a sound institutional environment as well as economic freedom that is more incentivizing for investment. We apply similar reasoning to savings in line with Giuliano and Ruiz-Arranz (2009), who argue that remittances, like foreign aid, may only be more effective in a good policy environment such as a good investment climate with sound institutions. The availability of data on the selected moderating variables allows an explicit evaluation of their direct effect on savings but also the indirect effect of remittances via these interventions. Intuitively, an interactive savings model is applied to account for the possibility of conditional effects.

Likewise, we test for the moderating effect of macroeconomic instability on the inward remittance–savings relationship, if any. A similar interactive model approach is adopted in Bjuggren et al. (2010) albeit for an analysis of the investment drivers instead in 79 developing countries during 1995–2005. In any case, the authors, interestingly, note that the marginal importance of remittances as a financial source for investment decreases with improved institutional framework. Motivated by these findings, we evaluate the saving behavior as remittances change in the face of a dynamic environment. Additionally, we include alternative forms of foreign capital as conditional factors in the remittance–savings model. Third, we differentiate between the remittance impact on national or public savings, here known as GS. Finally, we incorporate the financial crisis (FC) dummy to capture the effect of external shocks that appear common during the global FC of 2007 onward. With the majority of the migrants located in severely hit countries such as the USA, Spain, and other advanced countries, inward remittances could have been equally affected and in turn affected their possible impact on savings. Finding out the extent to which the crisis would have moderated the remittance–savings nexus in the LAC region is considered critical.

The empirical findings reveal that inward remittances are crucially important for savings in the LAC countries. Evidence also points to the complementarity role of foreign capital proxied by foreign aid and FDI in the remittance–savings linkage. Notably, remittances are observed to be a lifeline to savings in countries where foreign aid and inward FDI are improving in the long-run. Likewise, macroeconomic instability, proxied by inflation, is a disincentive to the role of remittance inflows in the saving behavior of the LAC economies. On the other hand, the role of the institutional quality is doubtlessly found important in explaining the extent to which migrant remittances affect savings in the long-run.

The paper proceeds as follows. Section 2 contains our estimation model while Section 3 explains the empirical strategy and the data used for the analysis. The estimation results and discussion are then presented in Section 4. Section 5 concludes the paper.

In the footsteps of Kelly and Mavrotas (2008), inter alia, with a focus on savings, we specify a reduced-form behavioral function for savings that includes some of the aforementioned factors identified in literature, as in Eq. (1): (1) S=f(REM, AID, FDI, INST, GDP, INF, Credit, DIR) S = f(REM,\,AID,\,FDI,\,INST,\,GDP,\,INF,\,Credit,\,DIR) which can linearly be specified as in Eq. (2) (2) Sit=αi+β'REMit+γ'Xit+μi {S_{it}} = {\alpha_i} + {\beta'}{REM_{it}} + {\gamma'}{X_{it}} + {\mu_i} where S_it (GS) is the dependent variable for country i at time t; X stands for all other explanatory variables identified from literature, particularly INST (institutional quality, proxied by governance quality indicators, PR, and CL); FD is proxied by credit (by banks to private sector) while macroeconomic stability indicators are proxied by inflation (INF) and GDP as well as interest rates (here proxied by deposit interest rates [DIR]); and foreign capital is likewise proxied by FDI and foreign AID. The main explanatory variable for the study is REM (inward remittances).

As argued earlier, the possibility of a conditional behavior of remittances on savings in the LAC region may not be ignored, given the available evidence that the way countries benefit from remittances appears to be positively related to the countries’ integrated environment, say, the institutional and macroeconomic environments (Fajnzylber and López, 2008). We contend that a country's level of economic development (GDP), institutional quality (INST), foreign capital, and macroeconomic stability (INF) are each likely to moderate independently the impact of inward remittances on savings. For example, in countries with poor governance ranking, the effect of inward remittances on savings is expected to be low, albeit higher in countries with a better governance quality index. However, the possibility of this not being the case is equally high if remittances substitute the other dwindling forms of foreign capital as a result of deteriorating institutions or other exogenous forces. Therefore, to evaluate the complementarity or substitutability, we introduce relevant interactions in the savings model, namely, remittances with institutional quality (REM * INST), with foreign capital (REM * FC), and with macroeconomic stability (REM * INF). A positive and significant coefficient of the interaction term, say between governance quality and inward remittances, would imply that remittances are more effective in inducing savings in sound institutional environments. In that case, higher institutional quality would be deemed as complimenting remittance inflows to boost savings. On the other hand, the converse would be tantamount to the claim that remittances are a lifeline to savings in institutionally difficult settings. Analogous interpretation interpretations are given to the other interaction effects.

Clearly, interaction terms produce structural multicollinearity because they include the main effects as there is a correlation between the interaction term and both of the main effect terms. In fact, high correlation among interaction terms and main effects is normal, expected, and inevitable. Moreover, it is important to distinguish between the mere presence of multicollinearity, which is not a problem in its own right, and a multicollinearity problem (Schwarz et al., 2014; Aiken and West, 1991). Nevertheless, in order to overcome any possible multicollinearity problem from interaction terms in our model, we followed the recommendation of centering all continuous independent variables in the interaction term (Huang, 2021; Kramer & Blasey, 2004; Aiken and West, 1991). Certainly, and very important to note here, is that multicollinearity can only increase the standard errors (SEs) of the estimated coefficients but does not bias the coefficient estimates; it just decreases efficiency. If the SEs are found small enough that the research goals could be achieved, it would imply no problem with structural multicollinearity (Aiken and West, 1991).

We set out to investigate both the direct as well as the indirect role of migrant transfers on the saving behaviors of the LAC countries during the period 1997–2018. Using the ARDL panel estimation technique, the results based on the PMG approach provide strong evidence to our hypotheses. On average, an increase in inward remittances by 1% would lead to about 0.10% increase in savings after controlling for income, interest rates, and inflation, but the effect is quantitatively larger in the short-run than in the long-run. Moreover, we observe a detrimental role of remittances on savings in the long-run once governance quality in aggregate and disaggregated forms are controlled for. These adverse effects could spill over to economic development since savings are a lifeline to economic growth. Macroeconomic stability as well as sound institutional quality and alternative forms of foreign capital are found to be important moderators of the remittance–savings linkage. Also notable is that remittances appear to perform better in mitigating the adverse effects of poor institutional quality on savings, particularly in the long-run, where CC, RQ, and VA are still wanting. Nevertheless, an environment where corruption is highly controlled is found to bleed greater remittance benefits to savings in the short-run. Similarly, higher institutional quality in terms of PR in the long-run, and CL in the short-run, complement remittance inflows in propelling savings to Latin America and the Caribbean countries. On the other hand, the remittances play a major role in ameliorating the adverse effects of the FC on savings, just as they are observed to function as a lifeline to savings in countries with increasing macroeconomic instability in form of inflation, in the long-run. Finally, the study findings reveal the importance of other forms of foreign capital (i.e., foreign aid and FDI) in the remittance–savings linkage, implying a complementary role of migrant transfers rather than a substitute to AID or FDI. This is an important finding given that remittances are private flows, not directly intended to fund infrastructure development but also subject to fluctuations and the Dutch-disease effect. Therefore, misguided policies that promote these migrant transfers at the expense of other forms of foreign capital would be disastrous to economic development. The findings are robust to the use of alternative estimation techniques and with respect to alternative definition of savings. In a nutshell, while remittances are a blessing and not a curse for savers in the LAC countries, there is need for caution in promoting the same, especially given our finding that once governance quality is controlled for, the inward remittances appear detrimental to savings in the region in the long-run, albeit helpful in the short-run.

In order to maximize the saving impact of remittances, promoting other forms of capital such as official development aid and FDI would be in order, and hence the need for an integral approach. Nevertheless, specifically for remittances, there is an urgent need to support cautious policies directed toward the promotion of remittance inflows to the region, including but not limited to incentives to attract migrant transfers into local savings funds; and, policies for support of the ‘Remittances and Savings Program’ initiated by the Multilateral Investment Fund (MIF), seeking to increase the access and use of formal savings products among remittance-sending and -receiving households in the LAC region. In light of the United Nations sustainable development goals (SDGs), particularly SDG 10, on migration, the need to reduce the cost of remittance transfers within 3% of total transaction value by 2030 is a means of substantially increasing disposable income for remittance-receiving families. Additionally, a further expansion of mobile technology could help squeeze remittance costs and consequently boost the savings share of remittances to help the recipients acquire a greater ability to deal with the uncertainty in their lives by increasing their savings. The findings call for policies to further enhance institutional quality and promote inward FDI and development aid, as well as maintaining a stable macroeconomic environment in the effort to boost savings through remittances. An integral approach to support both inward remittances (private flows from migrants) as well as other forms of capital in invigorating savings is critical, especially given that the former may not directly be utilized for public infrastructural development. We concur with Merler (2018) that lower transaction costs and better access to financial services by immigrants should represent a key element of any policy to encourage remittances and in turn savings.

Overall, the study observation that remittances have a strong relationship with savings would imply that they indirectly act as channels of growth through savings. For, if savings are critical for investment and growth, then it is logical to argue that remittances that positively and significantly drive savings would by transitivity be important for growth. Nevertheless, further studies would perhaps be directed to investigating this possible dynamic linkage. It would also be interesting for future research to analyze in greater depth the remittance–governance–savings linkage using all countries if the objective changes. We limited ourselves to the LAC countries, as justified on account of the sizeable amount of remittances received relative to other regions among the developing countries as well as low savings observed. Moreover, many countries still lack data on the other variables we include in the model, albeit having data on institutions. We suggest it as a future study possibility once data for all countries on the relevant variables are available.