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Remittances and the Dutch disease in Sub-Saharan Africa. A Dynamic Panel Approach

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  • Francis M. Kemegue
  • Reneé van Eyden
  • Emmanuel Owusu-Sekyere

Abstract

This paper investigates the effect of remittance inflows on the real exchange rate in Sub-Saharan Africa (SSA) using annual data from 1980 to 2008 for 34 SSA countries, generalised method of moments by Arellano and Bover (1995) andfeasible generalised least squares by Parks (1967) and Kmenta (1971, 1986). We find that when cross-sectional dependence and individual effects are controlled for, remittances to SSA as a whole appreciate the underlying real exchange rate ofrecipient countries. However the Dutch-disease effect is not experienced via the loss of export competitiveness, because the exchange rate appreciation is mitigated by monetary policy positioning and overdependence on imports due to low levels of domestic production in these countries. We also find reverse causality between remittances and the real exchange rate.

Suggested Citation

  • Francis M. Kemegue & Reneé van Eyden & Emmanuel Owusu-Sekyere, 2011. "Remittances and the Dutch disease in Sub-Saharan Africa. A Dynamic Panel Approach," Working Papers 259, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:259
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    1. repec:eur:ejesjr:136 is not listed on IDEAS
    2. Eromenko, Igor, 2016. "Do Remittances Cause Dutch Disease in Resource Poor Countries of Central Asia?," MPRA Paper 74965, University Library of Munich, Germany.

    More about this item

    Keywords

    Dutch disease; remittances; real exchange rate; Sub-Saharan Africa;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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