A standard view in development economics is that developing countries are unable to undertake the required investment because of inadequate financing, poor institutions and undeveloped financial markets. This paper investigates the impact of remittance inflows into the developing countries on investment under different levels of institutional and financial development. The empirical analysis is carried on a sample of 79 developing countries covering the period 1995-2005. The estimates suggest that remittance inflows, sound institutions and well-developed financial sector increase domestic investment. Moreover, the results also indicate that when the institutional setting and the depth of financial intermediation are such that access to external finance is limited, remittance inflows are an important source of financing investment. The findings are robust to alternative static and dynamic panel estimators and different measures of institutional quality and financial development. An important implication of these findings is that the extent to which an economy benefits from remittance inflows is driven by the prevailing institutional environment and the level of financial development.

Studies show that manufacturing growth is fundamental to sustained economic growth and development. However, recent Dutch disease perspective studies suggest that remittance inflows have the potential to impede manufacturing growth of the recipient economies. This paper contributes to the literature by investigating the effect of remittance inflows on manufacturing growth directly. The main claim of the paper is that the Dutch disease perspective identifies only one of the several channels through which remittance inflows impacts on manufacturing growth and hence unlikely to reflect the ultimate impact of remittances on manufacturing growth. This study uses the 3-digit level manufacturing data on a sample of 40 remittance-dependent economies over the period from 1991 to 2004. The empirical results indicate positive and robust effect of remittance inflows on manufacturing growth. This finding implies that one of the mechanisms through which remittance inflows could lift standards of living in poor countries is via the impact on manufacturing growth.

This paper investigates the relevance of intrinsic motives in the value-enhancing monitoring role of large shareholders. A standard view in the corporate governance literature is that the large shareholder monitors management precisely because of personal financial interests. This paper argues that the exclusive focus on extrinsic considerations sidesteps the intrinsic motives of the large shareholder to minimize managerial opportunism and inefficiency. The paper sheds light on the importance of the intrinsic aspects of firm ownership and control by examining the relative investment performance of foundation controlled firms listed on the Stockholm Stock Exchange during 1999-2005. Foundations are not-for-profit organizations with no residual claimants and thus largely lack the personal financial motives to monitor management. The empirical analysis is carried out in the framework of the marginal q methodology. The results suggest that whereas the typical firm in the sample overinvests, the extent of overinvestment is significantly lower in firms with at least one large shareholder. More importantly, the results suggest that even though foundations largely lack the residual claimants and, hence, the personal financial interest, they are as efficient as other large shareholders in curbing managerial opportunism. This finding is consistent with the view that large shareholders are not only actuated by extrinsic motives to minimize managerial opportunism and inefficiency. Intrinsic motives matter.