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Can Financial Development Mitigate the Impact of Remittances on Real Exchange Rate Appreciation?

Author

Listed:
  • Abubakar Lawan Ngoma

    (Federal University Gashua, Yobe State, Nigeria)

  • Normaz Wana Ismail

    (Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia)

Abstract

Remittances have been blamed for causing real exchange rate appreciation by raising the relative prices of nontraded goods and services in the recipient countries. However, empirical studies seeking to support this claim are lacking in Asia, despite the huge amount of remittances received by the region. In view of that, this paper used a panel dataset from eighteen remittance-recipient Asian countries during the period of 1981 – 2010 and Pooled Mean Group (PMG) estimator to examine the effect of remittances and financial sector development on real exchange rate. The paper, specifically, questions if the real exchange rate appreciation caused by the inflow of remittances varies with the degree of financial sector development in these countries. The paper finds that inflow of remittances has significant long-run impact on the appreciation of the real exchange rates in the remittance-recipient Asian countries. However, such effect of appreciation declines in countries with enhanced financial sector development.

Suggested Citation

  • Abubakar Lawan Ngoma & Normaz Wana Ismail, 2019. "Can Financial Development Mitigate the Impact of Remittances on Real Exchange Rate Appreciation?," Remittances Review, Remittances Review, vol. 4(2), pages 89-116, October.
    • Handle: RePEc:mig:remrev:v:4:y:2019:i:2:p:89-116
    DOI: 10.33182/rr.v4i2.706
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    More about this item

    Keywords

    remittances; financial development; real exchange rate; Asian countries;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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