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The Macroeconomics of Remittances In the Philippines

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  • Bayangos, V.B.
  • Jansen, K.
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    Abstract

    The literature on remittances has in the past concentrated on themicroeconomic aspects of the remittance process: the determinants ofremittances, impact of remittances on household allocation decisions, and theirimpact on poverty. Only recently has there been more attention on themacroeconomic impact of remittances. It is to be expected that, whenremittance inflows are as large as they are in the Philippines, they are likely tohave significant macroeconomic effects.Our paper first explores the cyclical dynamics of remittances to thePhilippines and secondly, analyses the macroeconomic impact of remittancesand the monetary policy implications. In this second endeavour, our paper usesa dynamic structural quarterly macroeconometric model of the Philippines totrace the various channels along which remittances affect the mainmacroeconomic variables.In the assessment of the impact of the recent global recession we shouldalso consider the remittances as a transmission channel. We have establishedthat remittances are driven by the economic cycle of the main host countriesand that the ongoing recession will thus lead to a decline in transfers. Throughour model we have been able to trace the impact of changes in remittances onimportant economic variables, like aggregate demand, money supply andinterest rates, exchange rate and labour supply and wages. We have alsoestablished that the fluctuations in remittances flows over the years are of amagnitude that is significant enough for policy makers to take notice. Themodel simulations have shown that the impact of the US recession on thePhilippine economy is more severe once we take account of the endogeneityand pro-cyclicality of remittances.

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    File URL: http://hdl.handle.net/1765/19676
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    Bibliographic Info

    Paper provided by International Institute of Social Studies of Erasmus University (ISS), The Hague in its series ISS Working Papers - General Series with number 470.

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    Date of creation: 01 Mar 2009
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    Handle: RePEc:dgr:euriss:470

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    Web page: http://www.iss.nl/

    Related research

    Keywords: Monetary policy; Exchange rate; Remittances;

    References

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    1. Carlos Vargas-Silva, 2009. "Are Remittances Manna From Heaven? A Look at the Business Cycle Properties of Remittances," Working Papers 0905, Sam Houston State University, Department of Economics and International Business.
    2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
    3. Claudia M. Buch & Anja Kuckulenz & Marie-Helene Le Manchec, 2002. "Worker Remittances and Capital Flows," Kiel Working Papers 1130, Kiel Institute for the World Economy.
    4. Dean Yang & HwaJung Choi, 2005. "Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines," Working Papers 535, Research Seminar in International Economics, University of Michigan.
    5. Giuliano, Paola & Ruiz-Arranz, Marta, 2009. "Remittances, financial development, and growth," Journal of Development Economics, Elsevier, vol. 90(1), pages 144-152, September.
    6. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    7. Dean Yang, 2008. "International Migration, Remittances and Household Investment: Evidence from Philippine Migrants' Exchange Rate Shocks," Economic Journal, Royal Economic Society, vol. 118(528), pages 591-630, 04.
    8. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
    9. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances: How Do Migrant Workers Respond to Cyclical Movements of GDP at Home?," IMF Working Papers 06/52, International Monetary Fund.
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    Cited by:
    1. Bayangos, Veronica & Jansen, Karel, 2011. "Remittances and Competitiveness: The Case of the Philippines," World Development, Elsevier, vol. 39(10), pages 1834-1846.

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