Remittances, Economic Growth, and Macroeconomic Stability in Central America: Panel Evidence. (#2208)

Authors

Hernandez Martinez, Martha Maria

Hernandez Martinez, Paula María

Pardes Heller, Juan Jacobo

Abstract

This paper examines the structural role of remittances as drivers of economic growth and macroeconomic stability in Honduras, El Salvador, Guatemala, Costa Rica, Nicaragua y Panamá, a region characterized by high exposure to external shocks and persistent dependence on external financial inflows. Using a panel data framework with country and time fixed effects and Driscoll–Kraay standard errors, the analysis evaluates whether remittance inflows contribute to growth dynamics and reduce output volatility. The results indicate that remittances are positively associated with per capita income growth and significantly reduce growth volatility, suggesting that these flows operate as a structural stabilizing mechanism. No statistically significant differential effect is observed during crisis periods, indicating that remittances primarily influence macroeconomic performance through long-run channels rather than short-term cyclical adjustments. The findings contribute to the literature by highlighting the role of remittances in strengthening economic resilience in small open economies.