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Analysis of the Propagation Effects of Remittances on the Vulnerability of External Trade of the Republic of Moldova

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  • Mircea DIAVOR

Abstract

In the Republic of Moldova remittances have become a much-discussed subject, the country ranking among the economies with the highest share of remittances in terms of GDP. What is more, remittances, unlike FDI, external trade and other sources of income, seem to have a significant impact on economic growth. Republic of Moldova is a small open economy vulnerable to external shocks. We will examine the effect of remittances on the balance of trade by creating an econometric model. Am attempt has also been made to capture the positive and negative spillovers that migrants’ remittances have on a country’s socio-economic development. Within the research a variety of analytical tools are employed including Granger causality tests, unit root tests, coupled with a structural vector auto regression (SVAR), impulse response function (IRF) analyses and variance decomposition. We find that net trade and remittances are closely associated and follow an almost identical path. Remittances have strong effect on the growth of negative net trade of the Republic of Moldova.

Suggested Citation

  • Mircea DIAVOR, 2021. "Analysis of the Propagation Effects of Remittances on the Vulnerability of External Trade of the Republic of Moldova," Eastern European Journal for Regional Studies (EEJRS), Center for Studies in European Integration (CSEI), Academy of Economic Studies of Moldova (ASEM), vol. 7(2), pages 94-120, December.
  • Handle: RePEc:aem:journl:v:7:y:2021:i:2:p:94-120
    DOI: https://doi.org/10.53486/2537-6179.7-2.06
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    References listed on IDEAS

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    1. Acosta, Pablo A. & Lartey, Emmanuel K.K. & Mandelman, Federico S., 2009. "Remittances and the Dutch disease," Journal of International Economics, Elsevier, vol. 79(1), pages 102-116, September.
    2. M. Rusydi & Sardar M. N. Islam, 2007. "Exchange Rate Economics in Developing Countries: Indonesian Exchange Rate Analysis," Palgrave Macmillan Books, in: Quantitative Exchange Rate Economics in Developing Countries, chapter 3, pages 34-44, Palgrave Macmillan.
    3. Roy, Ripon & Rahman, Md. Mokhlesur, 2014. "An empirical analysis of remittance – inflation relationship in Bangladesh: post-floating exchange rate scenario," MPRA Paper 55190, University Library of Munich, Germany.
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    More about this item

    Keywords

    net trade; remittances; Granger Causality Test; SVAR; variance decomposition; IRF analyses.;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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