Do Diaspora Engagement Policies Lead to an Increase in Remittance Inflows in Developing Countries?

This study empirically investigates the relationship between Diaspora Engagement Policies (DEPs) and remittance inflows in developing countries, addressing a critical gap in the literature where this relationship has been widely assumed but rarely tested with rigorous quantitative methods. Using a comprehensive dataset spanning 60 developing countries from 1996-2022, this research employs a mixed-methods approach combining Propensity Score Matching (PSM), Mahalanobis Distance Matching, and Regression Analysis to examine whether DEPs effectively enhance remittance inflows while controlling for key economic and political factors, including GDP, Inflation, and Political Stability. The analysis reveals findings that challenge simplistic assumptions about DEP effectiveness. PSM results indicate a positive Average Treatment Effect on the Treated (ATT) of 2.22%, suggesting that countries with formal DEPs experience remittance inflows approximately 2.2 percentage points higher than comparable countries without such policies. This finding is corroborated by Mahalanobis Distance Matching, which yields a similar ATT of 2.13%. However, regression analysis produces mixed results: while Pooled OLS models suggest a statistically significant positive association (coefficient = 1.4472, p < 0.001), Random Effects models accounting for unobserved country-specific heterogeneity find no statistically significant relationship (coefficient = 0.8698, p = 0.741). The study's findings indicate that while DEPs may create enabling environments for remittance flows through improved financial infrastructure and enhanced migrant-homeland connections, their effectiveness is contextual and insufficient as standalone interventions. GDP emerges as a significant predictor, with higher-income developing countries showing different remittance patterns, while inflation demonstrates a complex, potentially bidirectional relationship with remittance flows. Political stability, though theoretically important, shows inconsistent statistical significance across models. These results have important implications for development policy and practice. For policymakers, the findings suggest that DEPs should be implemented as part of comprehensive development strategies rather than isolated interventions, complemented by broader economic reforms and institutional strengthening. For the academic community, this research provides the first systematic empirical examination of the DEP-remittance relationship, establishing a methodological framework for future studies while highlighting the need for a clearer understanding of diaspora engagement mechanisms.