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

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  • Marta Ruiz-Arranz
  • Erik Lueth
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    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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    Bibliographic Info

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

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    Length: 14
    Date of creation: 01 Feb 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/22

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    Related research

    Keywords: Workers remittances; Economic conditions; Economic models; remittances; remittance; remittance receipts; cointegration; workers ? remittances; inward remittances; statistic; correlation; remittance flows; capital flows; correlations; statistics; time series; equation; migrant; determinants of remittances; standard deviation; additional regressor; migrant workers ? remittances; global remittance; financial statistics; migrants ? remittances; standard errors; flows of remittances; descriptive statistics; recipients of remittances; annual remittance; emigrant remittances; global remittances; covariance; remittance inflows; surveys; remittance data; increase in remittances; bilateral remittance;

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    1. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances," IMF Working Papers 05/224, International Monetary Fund.
    2. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances," IMF Working Papers 06/52, International Monetary Fund.
    3. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    4. Jacques Bouhga-Hagbe, 2004. "A Theory of Workers' Remittances with An Application to Morocco," IMF Working Papers 04/194, International Monetary Fund.
    5. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    6. Arvind Subramanian & Raghuram Rajan, 2005. "What Undermines Aid's Impacton Growth?," IMF Working Papers 05/126, International Monetary Fund.
    7. 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.
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    Cited by:
    1. Jean-Louis Combes & Christian Ebeke & Mireille Ntsama Etoundi & Thierry Yogo, 2012. "Are Foreign Aid and Remittances a Hedge against Food Price Shocks in Developing Countries?," Working Papers halshs-00608128, HAL.
    2. 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.).

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