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Are workers' remittances a hedge against macroeconomic shocks? The case of Sri Lanka

  • Erik Lueth

    (International Monetary Fund.)

  • Marta Ruiz-Arranz


    (International Monetary Fund.)

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    This paper estimates a vector error correction model for Sri Lanka in order to determine the response of remittance receipts to macroeconomic shocks. This is the first attempt of its kind in the literature. The authors found that remittance receipts are pro-cyclical and decline when the country’s currency weakens, undermining their usefulness as a shock absorber. On the other hand, remittances increase in response to oil-price shocks, reflecting the fact that most overseas Sri Lankan are employed in the Persian Gulf States. The pro-cyclicality of remittances calls into question the notion that remittances are largely motivated by altruism.

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    Article provided by United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in its journal Asia-Pacific Development Journal.

    Volume (Year): 14 (2007)
    Issue (Month): 1 (June)
    Pages: 25-39

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    Handle: RePEc:unt:jnapdj:v:14:y:2007:i:1:p:25-39
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    1. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    2. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances: How Do Migrant Workers Respond to Cyclical Movements of GDP At Home?," IMF Working Papers 06/52, International Monetary Fund.
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