The Effects of Remittances on Savings

Giraldi (2014) focuses on evaluating the effect of remittances on the economy. The article observes the growth of remittances in developed countries around the world. According to World Bank, 2014, remittances improved from 178 billion to 435 billion between 2004 and 2014. The article uses data from the Dominican Republic National Survey of Households conducted by the national office of statistics to assess remittances' effects on the country's economy. Part of the remittances goes to improving the living standards while the other goes to investment. Economic development is directly related to the level of investments because savings increase the investment level, as explained by the Solow Growth Model. The article tests the null hypothesis that remittance affects the level of household savings. 

There exists a 3 years gap in the available survey data. Survey data for 2008, 2009, and 2010 was unavailable, causing differences in outcome. As a result, the researcher used data for 2007, which proved complete and provided complete results. The available 2007 data proved inadequate and could not compare households receiving remittances and those without remittances. Similarly, the available data could not test formal theories advanced to explain the relationship between remittances and savings. Giraldi (2014) concluded a significant relationship between actual and in-kind remittances and household savings. A 10% increase in remittances increased the expected household savings by about 1.7%. The findings indirectly supported the idea that remittances' level improves consumption, business growth and stimulates economic development. 

Table 1 : Summary Statistics 

The range for both savings, 3405.61, and remittances, 35364.09, are significantly spread between the minimum and maximum. However, the spread for remittances is more significant than the spread of savings, implying that remittances differ significantly from savings. The mean savings is 19.89, significantly lower than the mean remittances of 1105.24. The difference indicates that a significant proportion of the remittances goes to expenditure rather than savings (Camm et al., 2018). The medians for savings, 0, and remittances, 443.52, are significantly lower than the means implying that both sets of data are positively skewed. Both standard deviations savings, 148.82 and remittances, 2082.63 are relatively large, confirming that the saving behavior and amounts of remittances received by various households differ significantly from the respective means. 

Figure 1 : A Scatter Plot Remittances against Savings: 

The relationship between the variables in a scatter plot depends on the arrangement of data plots. There exists a range number of households who do not save despite receiving large amounts of remittances. The large number of households who do not save confirms that a significant proportion of the remittances goes to expenditure. For saving households, there exists a positive trend suggesting that an increase in remittances increases savings. 

Table 2 : Correlation between Remittances and Savings 

The correlation between remittances and savings is 0.1773. The p ositive correlation indicates that the increase in remittances causes an increase in savings (Camm et al., 2018) . However, there exists a weak correlation between savings and remittances, confirming that most households use remittances for expenditure. 

Table 3 : Correlation between Remittances and Savings (For Positive US Savings Only) 

The correlation between remittances and savings above 0 is 0.3709. The p ositive correlation indicates that the increase in remittances causes an increase in savings. The correlation between remittances and saving is stronger for households with a saving culture. 

In conclusion, the findings slightly differ from those in the article. A significant proportion of the households use the remittances for expenditure rather than savings. However, an increase in remittances increases the level of savings among the group of households with a saving culture. Increased expenditure supports business growth, increase in employment opportunities, and hence economic development. 

References 

Camm, J. D., Cochran, J. J., Fry, M. J., Ohlmann, J. W., and Anderson, D. R. (2018). Essentials of business analytics. Cengage Learning. 

Giraldi, A. (2013). The Effects of Remittances on Savings: A Household Level Approach.