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Corresponding Author:
Bassam Hamdar, Faculty of Business and Economics, Department of Economics. American University of Science and Technology, Beirut, Lebanon

Coauthors:
Samer Nouayhid, Price Water House Coopers (PWC), Middle East Region, United Arab Emirates

Remittances and Foreign Aid as Sources of External Development Finance: Impacts on Savings and Investment in Post-war Lebanon

Volume 70 - Issue 1, February 2017
(pp. 47-72)
JEL classification: E21, E22, F21
Keywords: Remittances, Foreign Aid, Savings, Investment, Lebanon

Abstract

The on-going debate on the effectiveness of Foreign aid and Remittances in stimulating savings and investment has been inconclusive. The literature shows that the effects of these two sources of external development finance differ across nations. One country that the literature failed to examine was Lebanon. This remittance-dependent country which ranked 7th in the 2009 list of top remittance receiving countries in the world (as a percent of GDP), has also received significant flows of aid and is still suffering from a huge debt burden which makes it an ideal case for study. By applying a classical multivariate linear regression model for savings and a multivariate distributed lag model for investment for the post-civil war period, the results showed that the huge flows of remittances to Lebanon, which dwarf those of aid, exert a positive influence on both savings and investment while aid, the more volatile source of foreign capital, has a negative effect on savings and a positive effect on investment, irrespective of the poor political-economy environment in the country. Despite the fact that remittances may be considered a better source of development finance, those two foreign inflows can be seen as complements rather than substitutes.

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Remittances and Foreign Aid as Sources of External Development Finance: Impacts on Savings and Investment in Post-war Lebanon

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Institute for International Economics of the Genoa Chamber of Commerce

Institute for International Economics
of the Genoa Chamber of Commerce