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Rainfall, Financial Development, and Remittances

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  • Rabah Arezki
  • Markus Bruckner

Abstract

We use annual variation in rainfall to examine the effects that exogenous, transitory income shocks have on remittances in a panel of 42 Sub-Saharan African countries during the period 1960-2007. Our main finding is that these income shocks have a significant positive effect on remittances, but that the effect is significantly decreasing in the share of domestic credit to GDP. So much so, that at high levels of credit to GDP transitory increases in income had a significant negative effect on remittances. Our findings are consistent with the view that remittances take advantage of unexploited domestic investment opportunities that can exist due to domestic credit market frictions. Our findings also support the view that when barriers to financial flows are low, remittances effectively provide insurance against transitory income shocks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/153.

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Length: 21
Date of creation: 01 Jul 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/153

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  1. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521844413.
  2. Dean Yang, 2006. "Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002," NBER Working Papers 12794, National Bureau of Economic Research, Inc.
  3. Cynthia Bansak & Brian Chezum, 2009. "How Do Remittances Affect Human Capital Formation of School-Age Boys and Girls?," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 145-48, May.
  4. Freund, Caroline & Spatafora, Nikola, 2008. "Remittances, transaction costs, and informality," Journal of Development Economics, Elsevier, Elsevier, vol. 86(2), pages 356-366, June.
  5. Dean Yang & HwaJung Choi, 2005. "Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines," Working Papers, Research Seminar in International Economics, University of Michigan 535, Research Seminar in International Economics, University of Michigan.
  6. Pablo A. Acosta & Emmanuel K.K. Lartey & Federico S. Mandelman, 2007. "Remittances and the Dutch disease," Working Paper, Federal Reserve Bank of Atlanta 2007-08, Federal Reserve Bank of Atlanta.
  7. Salvador Barrios & Luisito Bertinelli & Eric Strobl, 2010. "Trends in Rainfall and Economic Growth in Africa: A Neglected Cause of the African Growth Tragedy," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 350-366, May.
  8. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(4), pages 725-753, August.
  9. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances," IMF Working Papers 06/52, International Monetary Fund.
  10. Catalina Amuedo-Dorantes & Susan Pozo, 2006. "Migration, Remittances, and Male and Female Employment Patterns," American Economic Review, American Economic Association, American Economic Association, vol. 96(2), pages 222-226, May.
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Cited by:
  1. Rabah Arezki & Markus Bruckner, 2011. "Rainfall, Financial Development, and Remittances: Evidence from Sub-Saharan Africa," School of Economics Working Papers, University of Adelaide, School of Economics 2011-30, University of Adelaide, School of Economics.
  2. repec:ipg:wpaper:17 is not listed on IDEAS
  3. Luca Marchiori & Jean-Francois Maystadt & Ingmar Schumacher, 2013. "Is environmentally-induced income variability a driver of migration? A macroeconomic perspective," Working Papers, Department of Research, Ipag Business School 2013-017, Department of Research, Ipag Business School.

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