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Do Remittances Worsen Export Diversification?

Author

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  • Erik Vardanyan

    (Economic Research Department, Central Bank of Armenia)

Abstract

The paper explores the impact of workers’ remittances on the level of export diversification. The hypothesis is that significant inflow of remittances causes overvaluation of real exchange rate, which in turn deteriorates diversity of export. The theoretical base is in line with the Dutch disease phenomenon. The paper uses annual cross-national panel data over 2000-2016 period and System GMM methodology. The evidence suggests that indeed large inflow of remittances is associated with less diversified export. The economic intuition behind is that remittance-caused real exchange rate appreciation unevenly suppresses export of goods: some goods "suffer" more than others do. In terms of the number of product-names, a percentage point increase in remittances to GDP sent home "reduces" variety of export by approximately five active lines. There are other interesting findings as well. An improvement of government effectiveness facilitates overall export diversification; terms of trade improvement and rise of real exchange rate volatility mostly increase export concentration rather than alter number of exported product-names.

Suggested Citation

  • Erik Vardanyan, 2019. "Do Remittances Worsen Export Diversification?," Working Papers 10, Central Bank of the Republic of Armenia.
    • Handle: RePEc:ara:wpaper:010
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    File URL: http://www.economics-ejournal.org/economics/discussionpapers/2019-46
    File Function: Published version, 2019
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    File URL: https://www.cba.am/EN/panalyticalmaterialsresearches/Analytical_26.08.19_1.pdf
    File Function: Working Paper, 2019
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    Cited by:

    1. Gnangnon, Sèna Kimm, 2020. "Aid for Trade and Services Export Diversification in Recipient-Countries," EconStor Preprints 210467, ZBW - Leibniz Information Centre for Economics.
    2. Muhammad Wasif Zafar & Muhammad Mansoor Saleem & Mehmet Akif Destek & Abdullah Emre Caglar, 2022. "The dynamic linkage between remittances, export diversification, education, renewable energy consumption, economic growth, and CO2 emissions in top remittance‐receiving countries," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(1), pages 165-175, February.
    3. Sèna K. Gnangnon, 2021. "Aid for Trade and services export diversification in recipient countries," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 189-225, June.

    More about this item

    Keywords

    remittances; export diversification; export concentration; export variety; real exchange rate; System GMM;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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