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Do Workers' Remittances Reduce the Probability of Current Account Reversals?

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  • Bugamelli, Matteo
  • Paternò, Francesco

Abstract

Summary This paper tests whether the large, cheap, stable, and low-cyclical flows of workers' remittances reduce the probability of current account reversals in recipient countries. Using a large panel of emerging and developing economies, we find that this is indeed the case: when remittances get above 3% of GDP, the relationship between a decreasing stock of international reserves and a higher probability of current account reversals becomes less stringent. IV estimation proves that the effect of remittances on current account reversals is of a causal nature.

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  • Bugamelli, Matteo & Paternò, Francesco, 2009. "Do Workers' Remittances Reduce the Probability of Current Account Reversals?," World Development, Elsevier, vol. 37(12), pages 1821-1838, December.
  • Handle: RePEc:eee:wdevel:v:37:y:2009:i:12:p:1821-1838
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    More about this item

    Keywords

    current account reversals workers' remittances international reserves;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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