Remittances, Corruption, and Human Development in Latin America

International private transfers from immigrant workers to families and friends have surged in Latin America. These transfers, also known as remittances, grew from a mere US$5 billion in 1990 to US$74.3 billion in 2016, supplementing the income of millions of families in the region. Particularly, remittances can contribute to human development by lifting large populations out of extreme poverty and by enabling better housing, education, and health. However, corruption and weak institutional environments can severely reduce the effectiveness of remittances on the path of development. For instance, remittance recipient households could be discouraged to use these foreign funds to acquire assets due to the cumbersome and corrupt process to legalize property. Using a panel of 26 Latin American and the Caribbean countries over the period of 1985-2016, this study investigates the effects of remittances and corruption on five development indicators. We find that remittances do significantly affect human capital indicators, and more so among countries fighting corruption.