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Remittances And The Dutch Disease In Sub-Saharan Africa: A Dynamic Panel Approach

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  • Emmanuel Owusu-Sekyere

    ()
    (Department of Economics, University of Pretoria)

  • Renee van Eyden

    ()
    (Department of Economics, University of Pretoria)

  • Francis Kemegue

    (Department of Economics, University of Pretoria)

Abstract

This paper investigates the effect of remittance inflows on the real exchange rate in Sub-Saharan Africa (SSA) using annual data from 1980 to 2008 for 34 SSA countries, generalised method of moments by Arellano and Bover (1995) and feasible generalised least squares by Parks (1967) and Kmenta (1971, 1986). We find that when cross-sectional dependence and individual effects are controlled for, remittances to SSA as a whole appreciate the underlying real exchange rate of recipient countries. However the Dutch-disease effect is not experienced via the loss of export competitiveness, because the exchange rate appreciation is mitigated by monetary policy positioning and overdependence on imports due to low levels of domestic production in these countries. We also find reverse causality between remittances and the real exchange rate.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201129.

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Length: 33 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:pre:wpaper:201129

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Keywords: Dutch disease; remittances; real exchange rate; Sub-Saharan Africa;

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