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Grants, Remittances, and the Equilibrium Real Exchange Rate in Sub-Saharan African Countries

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Author Info
Brett Rayner
Joannes Mongardini
Abstract

This paper builds on the methodology developed by Chudik and Mongardini (2007) to estimate the relationship between grants and remittances and the equilibrium real exchange rate in Sub-Saharan African (SSA) countries using panel techniques. The results indicate that grants and remittances are not associated, in the long run, with an appreciation of the real effective exchange in SSA and are therefore not likely to give rise to Dutch disease effects. These findings suggest that grants and remittances may be serving to ease supply constraints or boost productivity in the non-tradable sector in the recipient economies.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/75.

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Length: 27 pages
Date of creation: 22 Apr 2009
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Handle: RePEc:imf:imfwpa:09/75

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Related research
Keywords: Capital inflows ; Sub-Saharan Africa ; Low-income developing countries ; Inward remittances ; Real effective exchange rates ; Development assistance ; Millennium Development Goals ; Economic models ;

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  1. Shekhar Aiyar & Shaun K. Roache & Mumtaz Hussain & Tokhir N. Mirzoev & Amber Mahone & Andrew Berg, 2007. "The Macroeconomics of Scaling Up Aid: Lessons from Recent Experience," IMF Occasional Papers 253, International Monetary Fund.
  2. Yves Bourdet & Hans Falck, 2006. "Emigrants' remittances and Dutch Disease in Cape Verde," International Economic Journal, Korean International Economic Association, vol. 20(3), pages 267-284, September. [Downloadable!] (restricted)
  3. Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 841-857, 02. [Downloadable!] (restricted)
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  4. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
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  5. Serpil Tekin & Stephen J. Turnovsky & Valerie Cerra, 2008. "Foreign Aid and Real Exchange Rate Adjustments in a Financially Constrained Dependent Economy," IMF Working Papers 08/204, International Monetary Fund. [Downloadable!]
  6. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April. [Downloadable!] (restricted)
  7. Alexander Chudik & Joannes Mongardini, 2007. "In Search of Equilibrium: Estimating Equilibrium Real Exchange Rates in Sub-Saharan African Countries," IMF Working Papers 07/90, International Monetary Fund. [Downloadable!]
  8. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," CEG Working Papers 20012, Trinity College Dublin, Department of Economics. [Downloadable!]
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  9. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  10. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May. [Downloadable!] (restricted)
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  11. Pablo A. Acosta & Emmanuel K.K. Lartey & Federico S. Mandelman, 2007. "Remittances and the Dutch disease," Working Paper 2007-08, Federal Reserve Bank of Atlanta. [Downloadable!]
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  12. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
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  13. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth - The Impact of Grants and Remittances on the Equilibrium Real Exchange Rate in Jordan," IMF Working Papers 06/257, International Monetary Fund. [Downloadable!]
  14. M Pesaran & Yongcheol Shin & Ron P Smith, 2004. "Pooled mean group estimation of dynamic heterogeneous panels," ESE Discussion Papers 16, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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