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Remittances

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Author Info

  • Dalia Hakura
  • Ralph Chami
  • Peter Montiel

Abstract

Remittance flows appear to be falling worldwide for the first time in decades as a result of the ongoing financial turmoil. It is suspected that the drop in remittance income into developing and emerging markets will have a destabilizing effect on these economies. The paper estimates the impact of remittances on output stability for countries that are dependent on these income flows. Using a sample of 70 countries, including 16 advanced economies and 54 developing countries, we find robust evidence that remittances have a negative effect on output growth volatility of recipient countries. This result supports the notion that remittance flows are a stabilizing influence on output. Thus, the fall in remittances precipitated by the ongoing global financial crisis could potentially increase output variability in recipient countries. This would present a hard challenge for governments in those countries already suffering from the crisis: they must resort to an already stressed and limited set of policy instruments, such as fiscal policy, to counter the resulting adverse economic and social impacts of lower remittances.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/91.

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Length: 31
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/91

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Keywords: Poverty; Inward remittances; Developing countries; Developed countries; Capital inflows; Economic growth; Production; External shocks; Financial stability; Economic models; remittance; remittances; remittance flows; output volatility; remittance inflows; trade openness; output growth; workers remittances; terms of trade; effects of remittance; workers ? remittances; domestic shocks; transition countries; effects of remittances; effect of remittances; impact of remittances; effect of remittance; drop in remittance; recipients of remittances; transactions costs; commodity prices; worker remittances; domestic production; capital flows; commodity composition; remittance receipts; remittances flow; migrant; migration; increased trade; oil prices; open economies; domestic economy; trading partners; high levels of remittance; changes in remittance flows; average remittances; high remittances; equilibrium model; contribution of remittance; political economy; effect of remittances on growth; aggregate demand; economic implications of remittances; impact of remittance; exporting countries; per capita income; remittance recipient; immigrant remittance; remittance recipients; data on remittances; workers remittance; remittance data; increase in remittance; income from remittances; increased openness;

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References

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  1. Marco Terrones & Eswar Prasad & M. Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
  2. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
  3. Furceri, Davide & Karras, Georgios, 2007. "Country size and business cycle volatility: Scale really matters," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 424-434, December.
  4. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization," IMF Working Papers 06/189, International Monetary Fund.
  5. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
  6. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Growth Volatility and Financial Liberalization," NBER Working Papers 10560, National Bureau of Economic Research, Inc.
  7. Miklos Koren & Silvana Tenreyro, 2003. "Diversification and development," Working Papers 03-3, Federal Reserve Bank of Boston.
  8. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197, June.
  9. 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.
  10. Ricardo J. Caballero, 2000. "Macroeconomic Volatility in Latin America: A Conceptual Framework and Three Case Studies," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  11. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
  12. Michael T. Gapen & Thomas F. Cosimano & Ralph Chami, 2006. "Beware of Emigrants Bearing Gifts," IMF Working Papers 06/61, International Monetary Fund.
  13. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1419-1447, November.
  14. Dalia Hakura, 2007. "Output Volatility and Large Output Drops in Emerging Market and Developing Countries," IMF Working Papers 07/114, International Monetary Fund.
  15. Jihad Dagher & Ralph Chami & Peter Montiel & Yasser Abdih, 2008. "Remittances and Institutions," IMF Working Papers 08/29, International Monetary Fund.
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