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Remittances, Dutch Disease, and Competitiveness - A Bayesian Analysis

Listed author(s):
  • Mazhar Yasin MUGHAL
  • Farid MAKHLOUF

We look for symptoms of Dutch disease in the Pakistani economy arising from international remittances. The presence of endogeneity and uncertainty in our model due to the managed float of Pakistani Rupee prevalent during most of the studied period requires the use of a probabilistic rather than a standard frequentist technique. Therefore, we carry out an IV Bayesian analysis using the Gibbs algorithm. We find evidence for both spending and resource movement effects, both of them in the short as well as the long-run. Remittances cause an appreciation of the real exchange rate and loss of competitiveness of Pakistan’s exports sector along with a concomitant rise in the share of the non-tradable sector in the economy. These impacts are stronger and different from those the Official Development Assistance and the FDI exert. We find that while aggregate remittances and the remittances from Persian Gulf contribute to the Dutch disease in Pakistan, those from North America and Europe do not. Cet article étudie la possibilité que l'économie pakistanaise souffre du syndrome hollandais dû aux transferts de fonds. La présence potentielle de l'endogénéité et de l'incertitude dans notre modèle, en raison du taux de change administré, peut être mieux analysée en utilisant les techniques probabilistiques. Par conséquent, nous employons la méthode Bayésienne IV. Nous trouvons l'évidence de l'effet dépense et l'effet de réallocation de ressources, tout les deux. Les transferts de fonds causent l'appréciation du taux de change réel et une baisse de la compétitivité du secteur des biens échangeables, en même temps que la part du secteur non-échangeable monte en importance. Les symptômes du syndrome hollandais sont présents à court terme ainsi qu'à long terme. Ces impacts sont plus forts que ceux de l’assistance officielle et des investissements directs étrangers, et différents de ceux-ci. A l'échelle régionale, les transferts de fonds venant du golfe persique contribuent à cela, mais ceux de l'Amérique du Nord et de l’Europe ne montrent pas de signes du syndrome.

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File URL: http://gtl.univ-pau.fr/travaux/833F_110689_2011_2012_1DocWcattRemittancesDutchDiseaseCompetitivenessBayesianAnalysisFMakhloufMMughal.pdf
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Paper provided by CATT - UPPA - Université de Pau et des Pays de l'Adour in its series Working Papers with number 2011-2012_1.

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Length: 38 pages
Date of creation: Dec 2011
Date of revision: Dec 2011
Handle: RePEc:tac:wpaper:2011-2012_1
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