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A Gravity Model of Workers' Remittances

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  • Erik Lueth
  • Marta Ruiz-Arranz
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    Abstract

    This paper creates the first dataset of bilateral remittance flows for a limited set of developing countries and estimates a gravity model for workers'' remittances. We find that most of the variation in bilateral remittance flows can be explained by a few gravity variables. The evidence on the motives to remit is mixed, but altruism may be less of a factor than commonly believed. Most strikingly, remittances do not seem to increase in the wake of a natural disaster and appear aligned with the business cycle in the home country, suggesting that remittances may not play a major role in limiting vulnerability to shocks. To encourage remittances and maximize their economic impact, policies should be directed at reducing transaction costs, promoting financial sector development, and improving the business climate.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/290.

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    Length: 20
    Date of creation: 01 Dec 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/290

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    Keywords: Workers remittances; Developing countries; Capital inflows; Financial sector; Economic models; remittances; remittance; remittance flows; exchange rate; bilateral remittance; workers ? remittances; remittance receipts; migrant; dual exchange rate; determinants of remittances; migration; exchange rates; dual exchange rates; remittance data; capital flows; exchange arrangements; remittance flow; foreign exchange; amount of remittances; inward remittances; migrant workers ? remittances; remittance inflows; total amount of remittances; migrants ? remittances; exchange restrictions; volume of remittances; exchange rate appreciation; effect of remittances; multiple exchange rates; current accounts; flow of remittances; exchange policy; variation in remittances; real exchange rate; variation in remittance; currency unions; recipients of remittances; emigrant remittances; importance of remittances; economic implications of remittances; foreign exchange policy; diaspora; real exchange rate appreciation; outward remittances; bilateral remittance data; exchange rate policy;

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    References

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    1. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
    2. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
    3. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
    4. Marta Ruiz-Arranz & Paola Giuliano, 2005. "Remittances, Financial Development, and Growth," IMF Working Papers 05/234, International Monetary Fund.
    5. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-18, October.
    6. Elbadawi, Ibrahim & de Rezende Rocha, Robert, 1992. "Determinants of expatriate workers'remittances in North Africa and Europe," Policy Research Working Paper Series 1038, The World Bank.
    7. Jacques Bouhga-Hagbe, 2004. "A Theory of Workers' Remittances with An Application to Morocco," IMF Working Papers 04/194, International Monetary Fund.
    8. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    9. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    10. Elina Ribakova & Balázs Horváth & Dimitri G. Demekas & Yi Wu, 2005. "Foreign Direct Investment in Southeastern Europe," IMF Working Papers 05/110, International Monetary Fund.
    11. Aggarwal, Reena & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2006. "Do workers'remittances promote financial development ?," Policy Research Working Paper Series 3957, The World Bank.
    12. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances," IMF Working Papers 06/52, International Monetary Fund.
    13. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances," IMF Working Papers 05/224, International Monetary Fund.
    14. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
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    Cited by:
    1. Wim Naudé & Henri Bezuidenhout, 2014. "Migrant Remittances Provide Resilience Against Disasters in Africa," Atlantic Economic Journal, International Atlantic Economic Society, vol. 42(1), pages 79-90, March.
    2. Ahmed, Junaid & Martinez-Zarzoso, Inmaculada, 2013. "Blessing or curse: The stabilizing role of remittances, foreign aid and FDI to Pakistan," Center for European, Governance and Economic Development Research Discussion Papers 153, University of Goettingen, Department of Economics.
    3. Bank for International Settlements, 2010. "Globalisation, labour markets and international adjustment - Essays in honour of Palle S Andersen," BIS Papers, Bank for International Settlements, number 50, July.
    4. Alexander Culiuc, 2014. "Determinants of International Tourism," IMF Working Papers 14/82, International Monetary Fund.
    5. Sandra Leitner & Bernhard Dachs & Robert Stehrer, 2012. "Determinants of R&D activities of multinational firms abroad," ERSA conference papers ersa12p196, European Regional Science Association.

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