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Workers´ Remittances and the Equilibrium Real Exchange Rate: Theory and Evidence

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  • Adolfo Barajas

    ()

  • Ralph Chami

    ()

  • Dalia Hakura

    ()

  • Peter Montiel

    ()

Abstract

"This paper investigates the impact of workers´ remittances on equilibrium real exchange rates (ERER) in recipient economies. Using a small open economy model, it shows that standard "Dutch Disease" results of appreciation are substantially weakened or even overturned depending on: degree of openness, factor mobility between domestic sectors, and countercyclicality of remittances; the share of consumption in tradables; and the sensitivity of a country´s risk premium to remittance flows. Panel cointegration techniques on a large set of countries provide support for these analytical results, and show that ERER appreciation in response to sustained remittance flows tends to be quantitatively small."

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Bibliographic Info

Article provided by LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION in its journal JOURNAL OF LACEA ECONOMIA.

Volume (Year): (2011)
Issue (Month): ()
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Handle: RePEc:col:000425:008449

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Keywords: Worker´s remittances; equilibrium real exchange rate; low-income countries;

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  1. Faini, Riccardo, 1994. "Workers Remittances and the Real Exchange Rate: A Quantitative Framework," Journal of Population Economics, Springer, vol. 7(2), pages 235-45.
  2. Gianmarco I P Ottaviano & Giovanni Peri, 2008. "Immigration and National Wages: Clarifying the Theory and the Empirics," Working Papers 2008.77, Fondazione Eni Enrico Mattei.
  3. Arvind Subramanian & Raghuram Rajan, 2005. "What Undermines Aid's Impacton Growth?," IMF Working Papers 05/126, International Monetary Fund.
  4. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
  5. Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
  6. Runjuan Liu & Daniel Trefler, 2008. "Much Ado About Nothing: American Jobs and the Rise of Service Outsourcing to China and India," NBER Working Papers 14061, National Bureau of Economic Research, Inc.
  7. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2009. "Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys," Discussion Papers Series, Department of Economics, Tufts University 0742, Department of Economics, Tufts University.
  8. Giorgio Barba Navaretti & Giuseppe Bertola & Alessandro Sembenelli, 2008. "Offshoring and Immigrant Employment: Firm-level Theory and Evidence," Development Working Papers 245, Centro Studi Luca d\'Agliano, University of Milano.
  9. Pablo A. Acosta & Nicole Rae Baerg & Federico S. Mandelman, 2009. "Financial development, remittances, and real exchange rate appreciation," Economic Review, Federal Reserve Bank of Atlanta, pages 1-12.
  10. Cragg, M. & Kahn, M., 1995. "New Estimates on Climate Demand: Evidence from Location Choice," Discussion Papers 1995_34, Columbia University, Department of Economics.
  11. Emmanuel K. K. Lartey & Federico S. Mandelman & Pablo A. Acosta, 2012. "Remittances, Exchange Rate Regimes and the Dutch Disease: A Panel Data Analysis," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 377-395, 05.
  12. Ann E. Harrison & Margaret S. McMillan, 2006. "Outsourcing Jobs? Multinationals and US Employment," NBER Working Papers 12372, National Bureau of Economic Research, Inc.
  13. repec:wii:bpaper:bowp:068 is not listed on IDEAS
  14. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  15. Mary Amiti & Shang-Jin Wei, 2009. "Service Offshoring and Productivity: Evidence from the US," The World Economy, Wiley Blackwell, vol. 32(2), pages 203-220, 02.
  16. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth," IMF Working Papers 06/257, International Monetary Fund.
  17. Lone Engbo Christiansen & Alessandro Prati & Luca Antonio Ricci & Thierry Tressel, 2009. "External Balance in Low Income Countries," IMF Working Papers 09/221, International Monetary Fund.
  18. Acosta, Pablo A. & Lartey, Emmanuel K.K. & Mandelman, Federico S., 2009. "Remittances and the Dutch disease," Journal of International Economics, Elsevier, vol. 79(1), pages 102-116, September.
  19. Yves Bourdet & Hans Falck, 2006. "Emigrants' remittances and Dutch Disease in Cape Verde," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 267-284.
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Cited by:
  1. Montiel, Peter J. & Serven, Luis, 2008. "Real exchange rates, saving and growth : is there a link ?," Policy Research Working Paper Series 4636, The World Bank.
  2. Gianmarco I.P. Ottaviano & Giovanni Peri & Greg C. Wright, 2010. "Immigration, Offshoring and American Jobs," NBER Working Papers 16439, National Bureau of Economic Research, Inc.
  3. Abida Zouheir & Imen Mohamed Sghaier, 2014. "Remittances, Financial Development and Economic Growth: The Case of North African Countries," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(51), pages 137-170, March.
  4. Christian Ebeke & Thierry Yogo Urbain, 2013. "Working Paper 185 - Remittances and the Voter Turnout in Sub-Saharan Africa: Evidence from Macro and Micro Level Data," Working Paper Series 989, African Development Bank.
  5. Abdih, Yasser & Chami, Ralph & Dagher, Jihad & Montiel, Peter, 2012. "Remittances and Institutions: Are Remittances a Curse?," World Development, Elsevier, vol. 40(4), pages 657-666.

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