Empirical Essays on the Macroeconomics of Developing Countries

This paper explores three important issues facing various developing countries from an empirical perspective.

Chapter 1 investigates the effect of workers' remittances on real per capita output growth in developing countries. By addressing important shortcomings, and utilizing static and dynamic panel data techniques, it provides a broader and more conclusive empirical treatment of the remittance-growth relationship than the current literature. Two main results are contributed. First, remittances cause significant positive growth in developing countries. Second, controlling for weather is necessary to uncover this positive relationship. Apart from challenging the currently held view, these results suggest policymakers should actively encourage remittance inflows.

Chapter 2 asks: 'Are Caribbean countries feasible candidates for a monetary union?' Using a Dynamic Factor Model to determine the share of output growth attributable to global, regional and country-specific factors, symmetry of business cycles among Caribbean countries is assessed. This chapter also applies the same analysis to the EU and other proposed OCAs (ASEAN+3, GCC and UNASUR) and compares results across these regions. One main insight provided is that business cycle symmetry among CSME members is similar to that among the EU countries prior to forming the EU, suggesting discussions on forming a monetary union in the Caribbean are not baseless. This result contrasts with the views of similar recent papers.

Chapter 3 notes that output growth in emerging markets has responded very differently to shocks originating in developed countries over the 2007 financial crisis, as compared to the 1981, 1990 and 2001 US recessions. It documents this difference in behavior between these two groups and then investigates which is a more significant explanation of the change: size of the shock or structural change? Additionally, if it is propagation, what factors are associated with the underlying structural change? Three main results are reported. First, structural change within emerging markets played a bigger role than the size of the US shocks. Second, the structural change was oriented particularly towards the US. Third, the structural change was associated with trade factors and not financial factors. These findings are important to policymakers seeking to diversify investment risks through particular country groups.