In this study, using bounds approach and annual data for the period 1981-2008, the short and long-run effects of remittances and trade openness on income in Vanuatu are estimated. The results show trade openness and remittances having positive and significant effects, with no significant effects from financial development (FIN), foreign direct investment (FDI), and official development aid (ODA). FDI and ODA in this sense behave somewhat differently than remittances. Therefore a greater liberalization of goods and services market in general and short-term temporary movements of people in particular to boost remittances inflows and improving the overall institutional infrastructure is put forward as priority policy measures.
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