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Risk Sharing in the Middle East and North Africa: The Role of Remittances and Factor Incomes

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  • Faruk Balli
  • Syed Abul Basherz
  • Rosmy Jean Louis

Abstract

This paper investigates welfare gains and channels of risk sharing among 14 Middle Eastern and North African (MENA) countries, including the oil-rich Gulf region and the resource scarce economies such as Egypt, Morocco and Tunisia. The results show that, for the 1992-2009 period, the overall welfare gain across MENA countries is higher than those documented for the Organization for Economic Cooperation and Development (OECD) nations. In the Gulf region, the amount of factor income smoothing does not differ considerably when output shocks are longer-lasting than transitory; whereas the amount smoothed by savings increases remarkably when shocks are longer-lasting. By contrast, both factor income flows and international transfers respond more to permanent shocks rather than to transitory shocks in the non-oil MENA countries. The results also show that a significant portion of shocks is smoothed via remittance transfers in the economically less developed MENA countries, but not in the oil-rich Gulf and OECD countries. Finally, for the overall MENA region, a large part of the shock remains unsmoothed, suggesting that more market integration is needed to remedy the weak link of incomplete risk-sharing.

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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2012/392012.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-39.

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Length: 27 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:een:camaaa:2012-39

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Keywords: MENA region; Remittance transfer; Risk sharing; Welfare gain;

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  1. Fratzscher, Marcel & Imbs, Jean, 2007. "Risk Sharing, Finance and Institutions in International Portfolios," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6496, C.E.P.R. Discussion Papers.
  2. Yuliya Demyanyk & Vadym Volosovych, 2007. "Gains from financial integration in the European union: evidence for new and old members," Supervisory Policy Analysis Working Papers, Federal Reserve Bank of St. Louis 2007-01, Federal Reserve Bank of St. Louis.
  3. Carlos Marinheiro, 2003. "Output Smoothing in EMU and OECD: Can We Forego Government Contribution? A risk sharing approach," GEMF Working Papers 2003-02, GEMF - Faculdade de Economia, Universidade de Coimbra.
  4. Daron Acemoglu & Simon Johnson & James Robinson & Yunyong Thaicharoen, 2002. "Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," NBER Working Papers 9124, National Bureau of Economic Research, Inc.
  5. Antonio David, 2010. "How Do International Financial Flows to Developing Countries Respond to Natural Disasters?," IMF Working Papers 10/166, International Monetary Fund.
  6. Matteo Bugamelli & Francesco Paterno, 2006. "Do workers' remittances reduce the probability of current account reversals?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19872, London School of Economics and Political Science, LSE Library.
  7. Becker, Sascha O. & Hoffmann, Mathias, 2006. "Intra- and international risk-sharing in the short run and the long run," European Economic Review, Elsevier, vol. 50(3), pages 777-806, April.
  8. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report, Federal Reserve Bank of Minneapolis 146, Federal Reserve Bank of Minneapolis.
  9. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(4), pages 1081-1110, November.
  10. Wincoop, Eric van, 1994. "Welfare gains from international risksharing," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(2), pages 175-200, October.
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Cited by:
  1. Faruk Balli & Faisal Rana, 2014. "Determinants of risk sharing through remittances: cross-country evidence," CAMA Working Papers 2014-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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