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The contribution of remittances to growth: A dynamic approach and empirical analysis

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  • Nicholas P. Glytsos

Abstract

Purpose – The aim of this paper is to investigate the impact of exogenous shocks of remittances on consumption, investment, imports and output in five Mediterranean countries. Design/methodology/approach – This paper builds a Keynesian type econometric model with a dynamic perspective and a sound theoretical basis. The model is used for estimating short and long-run multipliers of remittances, through which the impact of remittances on growth and other key macroeconomic variables is estimated. Findings – The analysis reveals a uniform country performance of instability and uncertainty, with great temporal and inter-country fluctuations of remittance effects. The findings point to different inter-country priorities of remittance spending and to an asymmetric impact of remittance changes, in the sense that the good done to growth by rising remittances is not as great as the harm done by falling remittances. Research limitations/implications – In this paper the purpose is to examine the demand side impact of remittances and uses remittances as an exogenous variable in the model. A more comprehensive approach would probably be to consider jointly supply side elements and handle remittances as an endogenous variable to estimate feedbacks. Practical implications – The impacting shock of an increase or a drop of remittances is found not to be instantaneous, but is distributed over time smoothing out its effects on growth. This gives time for relevant policies to be adopted in case of emergencies in the remittance flows. The findings show that economies are weakly sheltered against the damaging impact of falling remittances. Consequently, countries with high remittances should be seriously taking them into consideration as a major pillar in planning a strategy for an overall development. Policy makers may carefully consider remittance induced imports, not necessarily to reduce them and turn them to domestic production, which may be inflationary, but to reshuffle them towards imports of investment goods. Originality/value – The value of this paper and its novelty is first, its methodological approach to build a new econometric model, based on a sound theoretical basis, for estimating the dynamic impact of remittances simultaneously on key macroeconomic variables; and second, the capability of the model to pinpoint similarities and divergences of remittance effects across countries and over time.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 32 (2005)
Issue (Month): 5 (October)
Pages: 468-496

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Handle: RePEc:eme:jespps:v:32:y:2005:i:5:p:468-496

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Related research

Keywords: Economic growth; Europe; Macroeconomics; Modelling;

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Citations

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Cited by:
  1. Yaw Nyarko & Kwabena Gyimah-Brempon, 2011. "Social Safety Nets: The Role of Education, Remittances and Migration," RSCAS Working Papers 2011/26, European University Institute.
  2. Garcia-Fuentes, Pablo A. & Kennedy, P. Lynn & Ferreira, Gustavo F.C., 2013. "U.S. Foreign Direct Investment in Latin America and the Caribbean: A case of Remittances and Market Size," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142985, Southern Agricultural Economics Association.
  3. Garcia-Fuentes, Pablo A. & Kennedy, P. Lynn, 2009. "Remittances and economic growth in Latin America and the Caribbean: The Impact of the human capital development," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46751, Southern Agricultural Economics Association.
  4. Ambrosius, Christian, 2012. "Are remittances a "catalyst" for financial access? Evidence from Mexican household data," Discussion Papers 2012/8, Free University Berlin, School of Business & Economics.
  5. World Bank, 2012. "Bangladesh - Towards Accelerated, Inclusive and Sustainable Growth : Opportunities and Challenges, Volume 2. Main Report," World Bank Other Operational Studies 12121, The World Bank.
  6. Ralph Chami & Adolfo Barajas & Anjali Garg & Connel Fullenkamp, 2010. "The Global Financial Crisis and Workers' Remittances to Africa," IMF Working Papers 10/24, International Monetary Fund.
  7. A. Nurul Hossain & Syed Hasanuzzaman, 2013. "Remittances and investment nexus in Bangladesh: an ARDL bounds testing approach," International Review of Economics, Springer, vol. 60(4), pages 387-407, December.
  8. Ramon A. CASTILLO-PONCE & Maria de Lourdes RODRIGUEZ-ESPINOSA & Erika GARCIA-MENESES, 2011. "The Importance Of Macroeconomic Conditions On Remittances In The Long-Run And In The Short-Run: The Case Of Mexico," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).
  9. Laurent Gheeraert & Ritha Sukadi Mata & Daniel Traca, 2010. "Remittances and Domestic Investment in Developing Countries: An Analysis of the Role of Financial Sector Development," Working Papers CEB 10-013.RS, ULB -- Universite Libre de Bruxelles.
  10. Kanchan Datta & Bimal Sarkar, 2014. "Relationship between Remittances and Economic Growth in Bangladesh: An Econometric Study," Bangladesh Development Research Working Paper Series (BDRWPS) BDRWPS No. 19, Bangladesh Development Research Center (BDRC).
  11. Adolfo Barajas & Ralph Chami & Christian Ebeke & Sampawende J.-A. Tapsoba, 2012. "Workers’ Remittances," IMF Working Papers 12/251, International Monetary Fund.

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