Macroeconomic determinants of migrant remittances to Caribbean countries: panel unit roots and cointegration

This article examines the macroeconomic factors influencing the flow of remittances to selected English-speaking Caribbean countries. A balanced two way fixed effects (FE) model, a random effects (RE) model and the adjusted fully modified ordinary least squares (FMOLS) model (designed to correct biases in OLS)are employed in estimating a relationship between per capita remittances and selected macroeconomic variables. This article also examines the time series properties of the data within a panel unit root and cointegration framework and in this respect, adds an important new dimension to the time series models on remittances by removing the possibility of a spurious relationship (Pedroni 1995,1997, 2000). The results strongly suggest that there is cointegration among the variables, and that remittances are influenced not only by altruistic motives but also by the investment motive in financial instruments. In addition, the results further indicate that there may be scope for public policy to increase these flows.