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The Effect of Skilled Emigration on Real Exchange Rates through the Wage Channel

Author

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  • Ouyang, Alice Y.

    (Asian Development Bank Institute)

  • Paul, Saumik

    (Asian Development Bank Institute)

Abstract

Building on an analytical model, we provide cross-country empirical evidence that net skilled emigration appreciates bilateral real exchange rates through the wage channel in source countries. Chains of causality in the presence of the Law of One Price run through the “spending effect” and the “resource allocation effect,” analogous to the remittance-based Dutch disease effect. A pricing-to-market model allows pass-through for both traded and nontraded prices when the Law of One Price is violated. The skilled emigration elasticity of real exchange rate is estimated to be in the range of between .6 and .8, with internal prices playing a dominant role. Alternative model specifications show robust outcomes.

Suggested Citation

  • Ouyang, Alice Y. & Paul, Saumik, 2018. "The Effect of Skilled Emigration on Real Exchange Rates through the Wage Channel," ADBI Working Papers 823, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0823
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    Cited by:

    1. Saumik Paul & Yoko Oishi, 2018. "A Primer on the Drivers of Labor Income Share," Working Papers id:12948, eSocialSciences.

    More about this item

    Keywords

    emigration; exchange rate; the Dutch disease;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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