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The Macroeconomic Impact of Remittances: A sending country perspective

  • Timo Baas

    ()

    (Department of Economics, University of Essen-Duisburg)

  • Silvia Maja Melzer

    ()

    (Department of Sociology, University of Bielefeld)

Using data for Germany, we analyze the impact of migration and remittances by developing an open-economy general equilibrium model with heterogeneous households. Within the model, the flows of remittances depend on the altruism of households. Households with higher altruism coefficient derive a higher utility from consumption of distant household members. Estimating the interrelation between household characteristic and remittances, we are able to derive altruism coefficients for different types of households. Applying the coefficients to our model, we show that remittances affect the macroeconomy primarily through the real exchange rate channel. Stronger remittances outflows depreciate the real exchange rate and give incentives to reallocate resources from the non-tradable towards tradable goods sectors. In the case of Germany, this translates into a converse dutch disease phenomenon.

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Paper provided by Norface Research Programme on Migration, Department of Economics, University College London in its series Norface Discussion Paper Series with number 2012021.

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Date of creation: Jul 2012
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Handle: RePEc:nor:wpaper:2012021
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  1. Dean Yang, 2006. "International Migration, Remittances, and Household Investment: Evidence from Philippine Migrants' Exchange Rate Shocks," NBER Working Papers 12325, National Bureau of Economic Research, Inc.
  2. Carlos Vargas-Silva, 2009. "Are Remittances Manna From Heaven? A Look at the Business Cycle Properties of Remittances," Working Papers 0905, Sam Houston State University, Department of Economics and International Business.
  3. Christian Dustmann & Josep Mestres, 2009. "Remittances and Temporary Migration," CReAM Discussion Paper Series 0909, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  4. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
  5. Ceyhun Bora Durdu & Serdar Sayan, 2010. "Emerging Market Business Cycles with Remittance Fluctuations," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 303-325, June.
  6. Dustmann, Christian, 2000. "Temporary Migration and Economic Assimilation," IZA Discussion Papers 186, Institute for the Study of Labor (IZA).
  7. Mika Saito, 2004. "Armington Elasticities in Intermediate Inputs Trade; A Problem in Using Multilateral Trade Data," IMF Working Papers 04/22, International Monetary Fund.
  8. Gordon H. Hanson, 2007. "Emigration, Remittances and Labor Force Participation in Mexico," IDB Publications (Working Papers) 9371, Inter-American Development Bank.
  9. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  10. Arellano, Manuel & Carrasco, Raquel, 2003. "Binary choice panel data models with predetermined variables," Journal of Econometrics, Elsevier, vol. 115(1), pages 125-157, July.
  11. Yves Bourdet & Hans Falck, 2006. "Emigrants' remittances and Dutch Disease in Cape Verde," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 267-284.
  12. Funkhouser, Edward, 1995. "Remittances from International Migration: A Comparison of El Salvador and Nicaragua," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 137-46, February.
  13. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
  14. Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
  15. 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.
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