The role of government effectiveness in shaping the impact of remittance on economic performance: insights from developing economies

Despite being one of the largest sources of external financial inflows to developing economies, the macroeconomic effects of remittances remain inconclusive. Addressing this gap, the present study investigates the relationship between remittance inflows and economic performance, measured by the Economic Performance Index (EPI), and the moderating role of government effectiveness across 42 developing countries during 2000–2023. Drawing on Saadi’s Sceptic Theory, the findings show that remittances reduce economic performance, while government effectiveness improves it and mitigates their adverse effects. Threshold analysis identifies critical values of 8.94 for remittances and −0.800 for government effectiveness, with heterogeneous effects across income groups.