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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 brings into doubt 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 which 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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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, 2011. "Remittances, Migrants' Education and Immigration Policy: Theory and Evidence from Bilateral Data," IZA Discussion Papers 6104, Institute for the Study of Labor (IZA).
  2. Jean-Louis Combes & Christian Ebeke & Mireille Ntsama Etoundi & Thierry Yogo, 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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