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A Little Money Goes a Long Way

Siddharth Gandhi

Abstract

This paper tests the claim that remittances—money sent by foreign workers to individuals

in their home country— have a significant impact on the democratization of a nation. It

theorizes that remittances, a non-taxable source of income, weaken the clientelistic relationship

that exists between the voters and the government. Unlike other sources of unearned foreign

income such as foreign aid and oil rents, remittances are private transfers between individuals.

By increasing the incomes of recipient households, remittances undermine the ability of the

incumbent party to maintain its existing patronage networks. This effect, I argue, is more

pronounced in party-based autocracies than in non-party autocracies due to the former’s larger

winning coalition. Using panel data analysis, this paper shows that remittances increase the level

of democracy of nations that are already transitioning towards democracy. It, however, fails to

find a significant relationship between the increasing inflows of remittances and the decline in

vote share of the incumbent party.

Key Words: Remittances, Democratization, Clientelism

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1 Introduction

Is there any difference between foreign aid, oil rents and remittances? Do these sources of

foreign income have a similar impact on the democratization of a nation? Contemporary research

depicts how these foreign revenues help in the survival of autocracies by allowing rulers to either

spend more on patronage (rentier effect) or arm themselves against popular pressures (repression

effect).

According to the recent World Bank Press Release1, the worldwide remittance flows are

estimated to exceed $581 billion in 2014. Out of that amount, developing countries are expected

to receive $436 billion. The recorded remittances were nearly three times the amount of official

aid (ODA) and almost as large as foreign direct investment (FDI) flows to developing countries.

Below are a few graphs that show the rising trend of remittances over the years.

1 "News." Remittances to Developing Countries to Stay Robust This Year, despite Increased Deportations of Migrant Workers, Says WB. World Bank, Web. 11 Dec. 2014.

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Graph 1: Trends of Total Remittances, foreign aid and FDI over the years 1990-2011. Since 1995, the flow of remittances worldwide has exceeded the flow of Official Development

Aid.

Graph 2: Box plot showing upward trend of per capita remittances over the years 1970-2012.

0 100 200 300 400 500Per capita remittances (constant US$)

2012201120102006200219981994199019861982197819741970

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This rising trend of remittances has made the recipient households increasingly

dependent on these flows. In Bosnia, Jordan and Albania, remittances amount to more than 15

per cent of the gross domestic product.

Like foreign aid and oil rents, remittances are a source of unearned foreign income. This

similarity has led scholars to equate remittances with foreign aid and oil rents and suggest a

similar detrimental effect on a nation’s democratization. Remittances, however, accrue directly

to individuals and raise their level of income. While a substantial amount of literature exists on

how foreign aid, foreign direct investment, and oil rents impact the democratization of a nation,

not enough research has been done on how remittances can impact this process.

This paper presents evidence that the increasing inflows of remittances play a role in a

nation’s democratization by undermining the clientelistic relationship that exists between the

voters and the government. In clientelism models involving an electoral connection, voters’

utility is a positive function of private consumption (individual’s spending on goods and

services) and a negative function of differences in issue positions (ideological preferences)

between the voter and the political party (Diaz-Cayeros, Estévez, and Magaloni 2007). The

poorer remittance recipients, who were initially dependent on state clientelism, now have an

increased income that is independent of government transfers. This increased income decreases

the marginal utility of government transfers and increases the importance of ideological

preferences in voting. To explore the mechanism linking remittances to democratization, this

paper examines how remittances influence electoral behavior. As a result of diminishing reliance

on government transfers, I expect the voters to vote more according to their ideological

preferences, thereby reducing their support for the incumbent party.

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The process of democratization, I argue, is likely to occur only in dominant party regimes

in contrast to other forms of autocracies. A dominant party system is an arrangement where there

is a category of parties that have successively won elections and whose future defeat cannot be

envisaged or is unlikely for the foreseeable future. For example, in Mexico, the Revolutionary

Institutional Party (PRI) had a monopoly on power from 1929 to 2000. In contrast to other

autocratic regimes, dominant parties have a larger winning coalition (i.e., they rely heavily on

broad-based distribution of goods) and are significantly less repressive. Non-party autocracies,

on the other hand, have a smaller winning coalition. Therefore, they do not rely on mass support

for regime survival and hence are under no compulsion to yield to their demand for

democratization. Given the differences highlighted above, I expect the results to be statistically

significant for dominant party regimes only.

This study runs a panel analysis using data for 214 nations over the period of 1970-2013.

It finds that remittances significantly increase the level of democracy of nations that are already

transitioning towards democracy i.e. have a polity score of 0.6 or above (on a scale of 0 to 1).

This effect, as I theorized, is significant only for dominant party regimes when compared to other

non-party autocracies. The results of the electoral behavior hypothesis do not point in the same

direction as the main hypothesis—increasing inflows of remittances do not significantly erode

support for the incumbent party. Due to a limited number of observations, this paper does not

involve an interaction of the electoral behavior hypothesis with party-based autocracies.

The next section defines the core concepts used in this paper. Section three reviews the

existing literature on the political consequences of unearned foreign revenue. I discuss my

theoretical intuitions and present the hypotheses in the fourth section. Section five describes the

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data and methods used to run the regression models. Finally, section six presents and discusses

the results.

2 Definitions of Core Concepts

Remittances: Personal remittances are the sum of personal transfers and compensation of

employees. Personal transfers, a new item in the Balance of Payments Manual 6th Edition

(BPM6), represent a broader definition of worker remittances. Personal transfers include all

current transfers in cash or in kind between resident and nonresident individuals, independent of

the source of income of the sender (and regardless of whether the sender receives income from

labor, entrepreneurial or property income, social benefits, and any other types of transfers; or

disposes assets) and the relationship between the households (regardless of whether they are

related or unrelated individuals).

Personal Remittances= Personal transfers + Compensation of employees

Compensation of employees refers to the income of border, seasonal, and other short-

term workers who are employed in an economy where they are not residents and of residents

employed by nonresident entities. It has three main components: wages and salaries in cash,

wages and salaries in kind, and employers’ social contributions. It is recorded in gross amounts

and includes amounts paid by the employee as taxes or for other purposes in the economy where

the work is performed.2

2 "How Do You Define Remittances?" – World Bank Data Help Desk. Web. 09 Dec. 2014.

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Compensation of employees= wages and salaries in cash + wages and salaries in

kind + employers’ social contributions

Democratization: Democratization is the transition to a more democratic political regime.

It may be the transition from an authoritarian regime to a full democracy, a transition from an

authoritarian political system to a semi-democracy or transition from a semi-authoritarian

political system to a democratic political system. The outcome may be consolidated or

democratization may face frequent reversals.

Clientelism: In the political realm, clientelism is associated with the particularistic use of

public resources and with the electoral arena. It entails votes and support given in exchange for

jobs and other benefits. It can become a useful strategy for winning elections and building

political support through the selective release of public funds to supporting politicians and

associates or the acceptance of political nominees as personnel in state-related agencies. It is

therefore a strategy of partial political mobilization that differs from more universal patterns,

such as programmatic appeals or mobilization motivated by parties' achievement records.

(Roniger 2004)

There exists a substantial amount of literature on clientelism with varying concepts and

definitions. I chose this definition as a part of my thesis because it fits the quid pro quo

relationship based on selective disbursement of public funds that I plan on using in my

arguments.

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3 Literature Review

Unearned foreign income and regime change

Foreign aid and oil rents are sources of unearned foreign income, i.e. the government does not

obtain these revenues from their citizens. Given that the government is less dependent on its

citizens to finance its budget, the less accountable forms of government i.e. ones with a smaller

winning coalition, are likely to engage in nonproductive activities that help them stay in power

(Bueno de Mesquita and Smith 2009). Ross (2001) argues that unearned sources of foreign

income may hinder the process of democratization of a nation through two effects: -

1) Rentier Effect: As a result of increased foreign income accruing directly to the

government, the government does not rely on citizens for obtaining resources. The

accountability of the government, hence, decreases due to its reduced dependency on

taxation. Brautigam and Knack (2004) found evidence supporting the hypothesis that

foreign aid leads to an overall decrease in quality of governance of a nation through a

reduction in checks and balances and democracy scores of the recipient nations. In order

to stay in power, autocracies just need to increase spending on patronage to select

individuals whose support is necessary for survival (Bueno de Mesquita and Smith 2010).

2) Repression Effect: Resource wealth hinders the democratization of a nation by enabling

governments to suppress any demands for democracy through an increased funding

towards internal security. Therefore, there is a reduction in public dissent by using the

increased income towards military expenditure. An example is the financing of

mukhabarat (intelligence agency) by pre-1979 Iranian government in order to arm

themselves against popular pressures.

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Remittances, like foreign aid and oil rents, are a source of unearned of foreign income.

This similarity has led scholars to equate remittances with other sources of unearned foreign

income and suggesting a similar detrimental effect on the democratization of a nation. Abdih

(2012) finds that increasing inflows of remittances increase corruption and decrease the quality

of institutions of the recipient nations. When it comes to analyzing the impact of unearned

foreign income on receiving nations, the existing literature does not make a distinction between

unearned household income and unearned government income. To bridge this gap in the existing

literature, this paper explains how unearned household income impacts the process of

democratization of the recipient nation.

Political and social repercussions of remittances

Remittances, as noted above, are a source of unearned household income. These private

transfers, which are independent of welfare goods provided by the regime, may have an impact

on individuals’ political behavior through two channels: -

1) Weakening of clientelistic relationship: By increasing the private income of citizens of a

nation, remittances weaken the clientelistic relationship between the government and its

citizens (Pfutze 2012). This makes individuals less dependent on transfer payments made

by the government, inducing voters to reduce their support for the incumbent. From a

sample survey of 18 Latin American countries, Ahmed (2012) found that remittance

recipients are less inclined to vote for the incumbent. This argument is valid as long as

the incumbent is not able to tax this inflow of money, thereby offsetting the increase in

the price of continued support. There exists substantial evidence to confirm the non-

taxability assumption of remittances. The World Bank (2006) notes, “Most remittance-

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receiving countries today do not impose taxes on incoming remittances." As remitters

have various means of dodging formal controls, remittances tend to be highly elastic to

taxes. Therefore, levying a tax on remittances is likely to result in a fewer remittances

sent through formal channels (Freund and Spatafora 2008). In view of the overwhelming

evidence, this paper considers remittances as a non-taxable source of income.

2) Spillover effects of civic values: By providing a mechanism of contacting emigrant

relatives, remittances may cause a spillover of civic and democratic values from the host

nation to the recipient nation. This paper, however, focuses solely on the monetary

transfers between individuals. It does not deal with the possible flow of ideas from the

source nation to the recipient nation. The democratic values of the source nation for the

money is, therefore, not relevant to this paper.

Remittances and modernization argument

It could be argued that an increase in remittances promotes the democratization of a nation by

promoting its economic growth. Burkhart and Lewis-Beck (1994), Londregan and Poole (1996),

and Barro (1999) have argued in favor of the modernization argument of democracy i.e. higher

income promotes democracy. Remittances, by providing funds to households, increase the per

capita purchasing power parity of the nation. Given that this increased income promotes the

democratization of a nation through urbanization, education, civil society, and redistribution of

wealth, it can be stated that remittances promote the democratization of a nation through its

economic development. This result is, however, contested in a well-known study by Przeworski

and Limongi (1997) who argue that a higher income does not promote a transition to democracy

but, rather, prevents countries from falling back into dictatorship once democracy has been

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established. This new finding has been widely accepted by political scientists and following this

rationale, this paper does not focus on the argument that a nation’s economic growth through

increasing inflows of remittances lead to its democratization.

4 Theoretical Framework

In a clientelistic system, the nature of contact between individuals and their government is based

on an asymmetric quid pro quo relationship. On one hand, we have the patron (government)

commanding a near monopoly over provision of public resources and on the other, the client

(citizens) who relies on the welfare resources the patron has to offer. This unequal access to

resources establishes a hierarchical relationship between the (superior) patron and the (inferior)

client. It is a mutually beneficial arrangement between an individual that has authority, wealth or

some other public resource (patron) and another that benefits through their support (client). This

asymmetric yet mutually beneficial arrangement between a patron and a client is known as

political clientelism. For a patron, clientelism is a strategy of acquisition and maintenance of

political power and for a client, it is a strategy of gaining access to private and welfare goods

(Piattoni 2001). In the words of Georg Simmel, it is a “schema of giving and returning the

equivalence.” 3

The main argument supporting this thesis is that inflows of non-taxable income

undermine the clientelistic relationship between the individuals receiving the remittances and

their government. In clientelism models involving an electoral connection, voters’ utility is a

positive function of private consumption (individual’s spending on goods and services) and a

negative function of differences in issue positions (ideological preferences) between the voter

3 Simmel, Georg, and Kurt H. Wolff. The Sociology of Georg Simmel. Print.

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and the political party (Diaz-Cayeros, Estévez, and Magaloni 2007). Among the various income

classes of voters in a nation, the poorer voters, due to their low-level of income, rely the most on

government transfers for consumption. This dependence does not allow this group of voters to

express their true political preferences of the regime during elections i.e. their voting behavior is

dominated by private consumption concerns, as opposed to ideological preferences. Remittances,

by increasing the income of poorer voters, allow voters to obtain local public goods that

substitute for government welfare and infrastructure expenditures.4 This increased income,

therefore, leads to a decrease in marginal utility of government transfers and an increase in the

importance of ideological preferences in voting. As a result, I expect voters to defect from the

incumbent and vote in favor of the party that aligns with their ideological preferences. As

mentioned earlier, the validity of this argument hinges on the assumption that the incumbent is

not able to tax this inflow of money, thereby offsetting the increase in the price of continued

support.

A major drawback of most of the existing studies on remittances is that they code

political regimes as binary i.e. either as an autocracy or as a democracy. In various countries,

such as Mexico, the political regime is a hybrid between an autocracy and a democracy

(Magaloni 2006). These political systems are called “dominant party regimes” or “party-based

autocracies”. Democratization, I argue, is likely to be significant for dominant parties only.

Unlike non-party autocracies, dominant parties: i) are significantly less repressive (Davenport

2007) and ii) have a larger winning coalition. This decreased repression increases the ability of

individuals to have organized opportunities for collective action and expressing dissent,

particularly via elections. A loss in elections in dominant parties, therefore, generally leads to a 4 World Bank (2006a) states that remittance-receiving households use remittances to finance both private consumption and investments in education, health, agriculture, and business.

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change in government. Non-party autocracies, on the other hand, are characterized by irregular

elections and suppression of opposition parties.

In forms of government with larger winning coalitions, survival depends not only on

provision of private goods to top party officials (patronage) but also on public goods to larger

segments of the population (clientelism) (Bueno de Mesquita, Smith et al. 2003). In non-party

autocracies, poorer households receiving remittances may not belong to winning coalitions and

are less likely to benefit from government spoils. Additionally, Ahmed (2012) argues that

autocracies may use external flows to households to redirect resources away from public goods

and towards private goods that are marginally more efficient in retaining the support necessary to

stay in power. Due to the presence of a high level of repression and a smaller winning coalition

in non-party autocracies, I expect the transition to democracy to be more likely in dominant party

regimes than other forms of autocracies.

While scholars have argued that unearned sources of foreign income hinder

democratization, I support my claim by arguing that remittances, unlike foreign aid and oil rents,

do not accrue to governments. They are private transfers between individuals or households, and

hence are likely to lead to a result opposite of the one observed in the case of foreign aid/oil

rents.

In conclusion, the theory presented in this paper can be summarized by the following

three hypotheses:

Hypothesis 1: Remittances have a significant impact on the democratization of a nation

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Hypothesis 2: Remittances have a significantly larger effect on the democratization of party-

based regimes than on other non-party autocracies

Hypothesis 3: Remittances lead to voters defecting from the incumbent and, hence, reducing the

incumbent’s vote share in the subsequent election

Given the limited number of observations for election years, this paper does not involve an

interaction of hypothesis 3 with party-based regimes.

5 Key Variables & Summary Statistics

Dependent Variables:

• Polity: Polity assigns a democracy score (from 0 to 10) to all the countries from 1946-

2013. Taken from the Polity IV Project conducted by Center for System Peace (CSP),

this is the key dependent variable in this paper. For ease of interpretation, I convert

polity scores to values ranging from 0 to 1.

• Vote share: Measures the vote share of the incumbent party for all the nations. This

variable is a part of the Department of Political Institutions (DPI) dataset, which is

available on the World Bank website. I use it to test the electoral connection

mechanism proposed earlier (Hypothesis 3).

Independent Variables:

• Remittance Per Capita: The main independent variable, measured in logarithms.

Given that this variable (measured in constant US Dollars) was not readily available,

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it was constructed by using remittances as a percentage of GDP, GDP in constant US

Dollars, and total population.

• Party-Based Autocracies: A dummy variable that takes the value of 1 for party-based

autocracies and 0 for non-party autocracies (personalist, monarchy and military).

Barbara Geddes coded the dataset that contained this variable. It is used in this paper

to introduce an interaction term for the second hypothesis.

Control Variables:

• Population: Measures the total population of all the nations from 1970-2013.

Obtained from the World Development Index (WDI), this variable is measured in

logarithms.

• Gross Domestic Product: Measures the Gross Domestic Product (GDP) of all the

nations from 1970-2013 in constant US Dollars. Obtained from the World

Development Index (WDI), this variable is measured in logarithms.

• Trade: Measures the value of trade as a percentage of GDP for all the nations from

1970-2013. Obtained from the World Development Index (WDI).

• Civil and Ethnic Violence: Taken from the Center for Systemic Peace (CSP), this

variable measures the intensity of civil and ethnic conflicts/wars for all the nations.

The values range from 0 to 10 with 0 indicating no violence and 10 indicating the

maximum value.

All these datasets can be found easily on the webpage of the respective sources.

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Table 1: List of variables Dependent Independent

Polity Score Log Remittance Per Capita

Vote share Party-Based Autocracies (Dummy)

Control Variables

Log Population

Log GDP

Trade as percentage of GDP

Civil and Ethnic Violence

Table 2: Sources of datasets Variable Years Source

Remittances as a percentage of GDP 1970-2013 WDI

Total Population 1970-2013 WDI

GDP 1970-2013 WDI

Trade as percentage of GDP 1970-2013 WDI

Polity Score 1960-2013 Polity IV

Regime Type 1960-2013 Geddes

Vote Share 1960-2013 DPI

Civil and Ethnic Violence 1970-2013 Center for Systemic Peace

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Table 3: Summary statistics Variable N Mean Standard

Deviation

Min Max

Remittances as a

percentage of GDP

4790 3.83 7.84 0.0000289 106.47

Total Population 8337 2.83e+07 1.10e+08 11481 1.36e+09

GDP 6951 2.04e+11 8.75e+11 5.67e+07 1.45e+13

Trade as percentage

of GDP

6612 79.36 48.72 0.31 531.73

Polity Score 7756 0.54 0.37 0 1

Party-Based Regime 3828 0.48 0.49 0 1

Vote Share 2153 62.24 23.48 1 100

Civil and Ethnic

Violence

6464 0.7 1.69 0 10

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6 Method

To test the main hypothesis (H1), I use the polity score of countries from Polity IV Project. For

ease of interpretation, I convert the polity values that range from 0 to 10 to values that range

between 0 and 1. The main independent variable is log of remittance per capita (constant US$). I

use log of remittance per capita instead of remittances as a percentage of GDP because the latter

consists of two variables—remittances and GDP—thereby making it difficult to isolate the

impact of remittances on the overall variable. The other main independent variable is party,

which is a dummy variable for party-based autocracies from Geddes (2003) dataset on types of

regimes. The party regimes constitute 48.03% of the total autocratic regime types, with others

being personalist (26.83%), monarchies (11.68%) and military based (13.46%). To test the

second hypothesis, I interact log of remittance per capita and party based regimes (log

remittance per capita × party). I include controls for log of population, log of GDP, trade as a

percentage of GDP, and civil and ethnic violence in a nation. To avoid reverse causality, I

perform a forward lagged analysis by applying a one-year lead to my dependent variable. All the

equations are clustered on country standard errors.

The last hypothesis deals with change in vote share of the incumbent, which is measured

by running a first difference regression on incumbent’s vote share for election years. Given the

limited number of observations for election years, I do not run a regression with an interaction of

log remittance per capita and party-based regimes to find differences between change in vote

share for party-based autocracies and non-party based autocracies. In an ideal situation, this

analysis would involve comparing vote share of the incumbent with opposition parties. This

would allow to test whether remittances allow voters to solve the collective action problem of

which party to support. The DPI dataset, unfortunately, does not have reliable information on

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vote share of opposition parties. More than 70% of the values for vote share of opposition

parties, including for strong democracies, are clustered around 0. Hence, this paper only assesses

the decline in vote share of the incumbent/incumbent party.

7 Results

Table 4 presents the results for models testing the main hypothesis i.e. whether remittances have

a significant impact on the democratization of a nation. The second column reports model

without fixed effects while the third column reports model with country fixed effects.

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Table 4: Remittances and polity scores Polity Score (Forward Lagged)

Without fixed effects With fixed effects

(log) Remittance per capita 0.0019**

(0.0009)

0.002

(0.002)

Polity score 0.955***

(0.007)

0.847***

(0.015)

(log) GDP 0.0027**

(0.001)

-0.011

(0.007)

(log) population -0.003**

(0.001)

0.079***

(0.018)

Trade (% of GDP) -0.00008**

(0.00004)

-0.00001

(0.0001)

Civil and Ethnic violence 0.0005

(0.0009)

-0.001

(0.002)

Constant term 0.022

(0.018)

-0.917

(0.191)

N 3965

Standard errors in parentheses * p<0.1, ** p<0.05, *** p<0.01

The second column shows that the observed result seems to support my hypothesis—

remittances have a significant impact on a nation’s democratization (p=0.4 for log remittance per

capita). The third column, however, shows that this result does not pass the robustness test

(p=0.259 for log remittance per capita). The process of democratization of nations, hence, is

being affected by unmeasured factors and characteristics of individual countries.

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In order to see if this result is consistent for different levels of democracy, the marginal

effects of log of remittance per capita for different polity scores were determined. To observe

this, an interaction term of log remittance per capita and polity is introduced into the model and

a graph of change in log of remittance per capita is plotted against the polity score.

Graph 3: Marginal effects of remittances on countries with different polity scores

Graph 3 shows the substantive effect of the main finding of this paper—remittances have

a significant positive impact on the democratization of a nation if it is already transitioning

towards democracy i.e. has a polity score of 0.6 or above. For nations that have a polity score of

0.6, increasing remittances by 10% increases the expected mean of polity score by 0.008%. For

nations that have a low polity score, i.e. below 0.6, remittances do not have a significant impact

on their democratization.

-.004

-.002

0.0

02.0

04dy

/dx

(log

rem

ittan

ce p

er c

apita

)

0 .2 .4 .6 .8 1Polity Score

Average Marginal Effects of log remittance per capita with 95% CIs

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Democratization in party-based autocracies

To test the second hypothesis, i.e. whether remittances have a significantly larger effect on the

democratization of party-based regimes than on other non-party autocracies, an interaction term

of party based regimes and log of remittance per capita is introduced into the model of the first

hypothesis. In table 5, the second column reports model without fixed effects while the third

column reports model with country fixed effects.

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Table 5: Remittances and polity scores with party interaction Polity Score (Forward Lagged)


(log) Remittance per capita 0.0016

(0.002)

0.013**

(0.005)

Polity score 0.971***

(0.018)

0.868***

(0.035)

Log remittance per capita ×

Party

0.002

(0.003)

-0.009

(0.006)

Party-based regime -0.019**

(0.008)

0.008

(0.019)

(log) GDP 0.001

(0.003)

-0.007

(0.013)

(log) population 0.0003

(0.003)

0.08**

(0.032)

Trade (% of GDP) -0.0002*

(0.001)

-0.000074

(0.0002)


(0.001)

-0.0009

(0.003)

Constant term 0.007

(0.039)

-1.08

(0.331)

N 1578

Standard errors in parentheses * p<0.1, ** p<0.05, *** p<0.01

In order to visualize the results of table 5, a graph was drawn to observe the marginal

effects of change in log of remittance per capita on party-based regimes.

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Graph 4: Marginal effects of remittances on party-based regimes

The horizontal axis represents party-based autocracies, while the vertical axis represents

the change in log of remittance per capita. As shown in the graph, remittances have a limited

impact on the democratization of party based autocracies and are significant at the 10%

significance level (p=0.062). For dominant party regimes, increasing remittances by 10%

increases the expected mean of polity score by 0.02%. For non-party autocracies, remittances do

not have a significant impact on their democratization.

Remittances and change in incumbent’s vote share

Increasing inflows of remittances, I argue, lead to a decrease in vote share of the incumbent party

as the marginal utility of voters’ ideological preferences increases. The results of this hypothesis

are summarized in Table 6.

-.002

0.0

02.0

04.0

06.0

08dy

/dx

(log

rem

ittan

ce p

er c

apita

)

0 1Party


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Table 6: Remittances and incumbent’s vote scores for election years Incumbent’s Vote share (First Difference)


(log) Remittance per capita -16.618

(16.623)

65.198

(57.793)

Polity Score -154.698*

(89.646)

-719.935**

(308.867)

(log) GDP -30.985

(19.632)

-545.999***

(192.565)

(log) Population 31.258

(33.765)

660.557*

(386.978)

Trade (% of GDP) 1.128**

(0.618)

1.332

(2.678)


(20.262)

-32.552

(45.779)

Constant term 427.447

(321.006)

2605.45

(4048.034)

N 337

Standard errors in parentheses * p<0.1, ** p<0.05, *** p<0.01 As shown in table 6, remittances do not have a significant impact on decreasing the vote

share of the incumbent party. To see whether this impact is significant for countries at different

levels of democracy, I conduct a marginal effects analysis of change in log of remittance per

capita on polity score was done.

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Graph 5: Marginal effects of remittances on incumbent’s vote share

In graph 5, the horizontal axis represents polity score, while the vertical axis represents

the change in log of remittance per capita. As suggested by the graph, remittances do seem to

reduce the incumbent’s vote share for nations with a polity score greater than 0.6 but given the

large p value (p=0.118), there is not enough evidence to conclude that remittances have a

significant impact on reduction of incumbent’s vote share. It is possible that the lack of statistical

significance could be due to the collective action problem between the voters. Few sections of

the population, especially poorer voters who do not receive remittances, might still be reliant on

the incumbent party for transfer payments. Fearing retaliatory measures from the incumbent,

such as withdrawing welfare goods from defecting voters, they could decide to stay loyal to the

incumbent since the cost of defecting is too high.

-100

010

020

0dy

/dx

(log

rem

ittan

ce p

er c

apita

)

0 .2 .4 .6 .8 1Polity Score


Gandhi 27

8 Conclusion

This paper provides evidence to support the idea that inflows of remittances play a significant

role in a nation’s democratization. A simple political economy argument was developed to show

how an increase in remittances, a non-taxable income, undermines the clientelistic relationship

that exists between the individuals and their government. Using data for 214 nations ranging

from years 1970-2013, I conclude that remittances significantly increase the chances of

democratization of nations that are already in the process of transitioning towards democracy, i.e.

for countries that have a polity score greater than or equal to 0.6. I also find that remittances have

a larger impact on the democratization of party-based autocracies than of non-party autocracies.

These findings are of significance because party-based autocracies have been the most resilient

autocracies in the past six decades. (Geddes 2003).

My argument for how remittances promote democratization does not preclude the

possibility that they allow strong autocracies to divert their expenditure from provision of

welfare to maintenance of patronage networks. Indeed, this could explain why remittances do not

have an impact on the democratization in non-party autocracies. The smaller winning coalition of

non-party autocracies makes them less dependent on mass support and gives them no incentive

to yield to the public’s demand for democratization.

The mechanism that is examined to link remittances to democratization, i.e. decline in

electoral support for the incumbent, does not point in the same direction as the main hypothesis.

Increasing inflows of remittances, therefore, do not lead to a decline in vote share of the

incumbent. I suggest two possible explanations for this divergence: 1) There is a possibility that

a lack of significant results can be attributed to the limited number of observations for election

years. 2) The other possibility is the existence of a collective action problem between the voters.

Gandhi 28

To understand this, the poor voters must be divided into two categories: those who receive

remittances and those who do not. Those who receive remittances rely marginally less on the

government for transfer payments, while those who do not are still dependent on the government.

The latter, therefore, are at a higher risk if they defect from the incumbent. If the incumbent

stays in power, he may decide to punish this section of voters by selectively withdrawing public

resources away from them. These voters may, therefore, decide not to defect from the incumbent.

For instance, under PRI rule in Mexico, PRONASOL funds, mainly consisting of public works

and poverty relief funds targeted to regions and municipalities, were systematically diverted to

sustain the electoral hegemony and punish the voters supporting the opposition (Magaloni 2006).

Gandhi 29

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