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Are Workers' Remittances a Hedge Against Macroeconomic Shocks? the Case of Sri Lanka

  • Marta Ruiz-Arranz
  • Erik Lueth
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    We estimate a vector error correction (VEC) model for Sri Lanka to determine the response of remittance receipts to macroeconomic shocks. This is the first attempt of its kind in the literature. We find that remittance receipts are procyclical and decline when the island's currency weakens, undermining their usefulness as 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 Gulf states. The procyclicality of remittances calls into question the notion that remittances are largely motivated by altruism.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/22.

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    Length: 14
    Date of creation: 01 Feb 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/22
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    1. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances; Evidence From India," IMF Working Papers 05/224, International Monetary Fund.
    2. Arvind Subramanian & Raghuram Rajan, 2005. "What Undermines Aid's Impacton Growth?," IMF Working Papers 05/126, International Monetary Fund.
    3. 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.
    4. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    5. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    6. Jacques Bouhga-Hagbe, 2004. "A Theory of Workers' Remittances with An Application to Morocco," IMF Working Papers 04/194, International Monetary Fund.
    7. Rapoport, Hillel & Docquier, Frédéric, 2005. "The Economics of Migrants’ Remittances," IZA Discussion Papers 1531, Institute for the Study of Labor (IZA).
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