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The role of exchange rate in remittance inflows: Evidence from Indonesia

Author

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  • Haryo Kuncoro

    (Faculty of Economics, State University of Jakarta, Indonesia)

Abstract

This paper attempts to analyze the economic importance of the exchange rate in Indonesia based on the question of whether the exchange rate determines the remittance inflows. Estimation of quarterly time series data for 2005(1)-2018(4) presents that remittance inflows and exchange rate are co-integrated and bi-directional Granger-causality. The results of ARDL present that remittance inflows are pro-cyclical both in the short- and the long-run, implying that remittance inflows are motivated by altruism or family arrangement. However, the home currency depreciation induces overseas workers to send more money. Asymmetrically, when the home currency appreciates, the overseas workers do not reduce their remit. Given the huge flows of remittance to Indonesia, the impact of remittances on the supply of foreign exchange should be a major concern for monetary authority. To stabilize the exchange rate and to maintain sufficient international reserve, improving the competitiveness of migrant workers should be an integral part of the macroeconomic policy.

Suggested Citation

  • Haryo Kuncoro, 2020. "The role of exchange rate in remittance inflows: Evidence from Indonesia," Economics Bulletin, AccessEcon, vol. 40(2), pages 1508-1521.
    • Handle: RePEc:ebl:ecbull:eb-19-00900
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    File URL: http://www.accessecon.com/Pubs/EB/2020/Volume40/EB-20-V40-I2-P130.pdf
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    References listed on IDEAS

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    4. Veronica Bayangos & Karel Jansen, 2010. "The Macroeconomics of Remittances in The Philippines," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 28(61), pages 18-58, August.
    5. Mr. Jacques Bouhga-Hagbe, 2004. "A Theory of Workers' Remittances with An Application to Morocco," IMF Working Papers 2004/194, International Monetary Fund.
    6. 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.
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    Cited by:

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    More about this item

    Keywords

    Remittances; Exchange Rate; Cyclicality; Asymmetric Respond; ARDL;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F2 - International Economics - - International Factor Movements and International Business

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