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Are Bilateral Remittances Countercyclical?

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  • Jeffrey Frankel

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Abstract

By putting together a relatively large data set on bilateral remittances of emigrants, this paper is able to shed light on the important hypothesis of smoothing. The smoothing hypothesis is that remittances are countercyclical with respect to income in the worker’s country of origin (the recipient of the remittance), while procyclical with respect to income in the migrant’s host country (the sender of the remittance). The econometric results confirm the hypothesis. This affirmation of smoothing is important for two reasons. First, it suggests that remittances should be placed on the list of criteria for an optimum currency area. Second, it sheds light on plans by governments in some developing countries to harness remittances for their own use, in that government spending in these countries generally fails the test of countercyclicality that remittances pass.

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 22 (2011)
Issue (Month): 1 (February)
Pages: 1-16

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Handle: RePEc:kap:openec:v:22:y:2011:i:1:p:1-16

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Migration; Emigrant; Immigrant; Remittance; Currency union; International; Procyclical; Countercyclical; Economic development; F24;

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References

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Citations

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Cited by:
  1. Docquier, Frédéric & Rapoport, Hillel & Salomone, Sara, 2012. "Remittances, migrants' education and immigration policy: Theory and evidence from bilateral data," Regional Science and Urban Economics, Elsevier, vol. 42(5), pages 817-828.
  2. Yasser Abdih & Ralph Chami & Christian Ebeke & Adolfo Barajas, 2012. "Remittances Channel and Fiscal Impact in the Middle East, North Africa, and Central Asia," IMF Working Papers 12/104, International Monetary Fund.
  3. International Monetary Fund, 2012. "Are Foreign Aid and Remittance Inflows a Hedge against Food Price Shocks?," IMF Working Papers 12/67, International Monetary Fund.

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