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Are Workers' Remittances a Hedge Against Macroeconomic Shocks? The Case of Sri Lanka

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Author Info
Erik Lueth
Marta Ruiz-Arranz
Abstract

We estimate a vector error correction (VEC) model for Sri Lanka to determine the response of remittance receipts to macroeconomic shocks. This is the first attempt of its kind in the literature. We find that remittance receipts are procyclical and decline when the island's currency weakens, undermining their usefulness as shock absorber. On the other hand, remittances increase in response to oil price shocks, reflecting the fact that most overseas. Sri Lankan are employed in the Gulf states. The procyclicality of remittances calls into question the notion that remittances are largely motivated by altruism.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/22.

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Length: 14 pages
Date of creation: 02 Feb 2007
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Handle: RePEc:imf:imfwpa:07/22

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Keywords: Workers remittances ; Sri Lanka ; Business cycles ; Economic conditions ; Economic models ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. 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. [Downloadable!]
  2. Raghuram Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," IMF Working Papers 05/126, International Monetary Fund. [Downloadable!]
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  3. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances: Evidence from India," IMF Working Papers 05/224, International Monetary Fund. [Downloadable!]
  4. Rapoport, Hillel & Docquier, Frédéric, 2005. "The Economics of Migrants’ Remittances," IZA Discussion Papers 1531, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. Jacques Bouhga-Hagbe, 2004. "A Theory of Workers' Remittances With An Application to Morocco," IMF Working Papers 04/194, International Monetary Fund. [Downloadable!]
  6. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  7. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August. [Downloadable!] (restricted)
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  1. Ceyhun Bora Durdu & Serdar Sayan, 2008. "Emerging market business cycles with remittance fluctuations," International Finance Discussion Papers 946, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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