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Remittances, Dutch Disease, and Competitiveness - A Bayesian Analysis

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  • Mazhar Yasin MUGHAL
  • Farid MAKHLOUF

Abstract

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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  • Mazhar Yasin MUGHAL & Farid MAKHLOUF, 2011. "Remittances, Dutch Disease, and Competitiveness - A Bayesian Analysis," Working Papers 2011-2012_1, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Dec 2011.
  • Handle: RePEc:tac:wpaper:2011-2012_1
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    Cited by:

    1. Irfan Ahmad Khan & Mazhar Mughal & Junaid Ahmed & Hongbo Cai, 2017. "Home and Host country determinants of financial investment flows to Pakistan," Economics Bulletin, AccessEcon, vol. 37(1), pages 361-376.
    2. Farid MAKHLOUF, 2013. "Remittances and Dutch Disease: A Meta-Analysis," Working Papers 2013-2014_8, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Dec 2013.
    3. Nuno Baetas da Silva & João Sousa Andrade & António Portugal Duarte, 2016. "Alternative Sources of Dutch Disease: A Survey of the Literature," GEMF Working Papers 2016-10, GEMF, Faculty of Economics, University of Coimbra.
    4. Farid Farid, 2014. "The impact of exchange rate policy on remittances in Morocco: A Threshold VAR analysis," Economics Bulletin, AccessEcon, vol. 34(4), pages 2351-2360.
    5. Junaid Ahmed, 2012. "Cyclical Properties of Migrant's Remittances to Pakistan: What the data tell us," Economics Bulletin, AccessEcon, vol. 32(4), pages 3266-3278.
    6. Sondra Collins & Edward Nissan, 2016. "Comparing Africa, Asia and Latin America/Caribbean countries using per capita GDP, remittances, openness, capital/labor ratios and freedom," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 188-198, January.
    7. Mazhar Yasin MUGHAL & Amar Iqbal ANWAR, 2012. "Remittances, inequality and poverty in Pakistan: macro and microeconomic Evidence," Working Papers 2012-2013_2, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2012.
    8. Inayat U. Mangla & Jamshed Y. Uppal, 2014. "Macro-economic Policies and Energy Security—Implications for a Chronic Energy Deficit Country," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(3), pages 255-273.
    9. Sondra Collins & Edward Nissan, 2016. "Comparing Africa, Asia and Latin America/Caribbean countries using per capita GDP, remittances, openness, capital/labor ratios and freedom," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 188-198, January.
    10. Adolfo Barajas & Ralph Chami & Christian H Ebeke & Anne Oeking, 2016. "What’s Different about Monetary Policy Transmission in Remittance-Dependent Countries?," IMF Working Papers 16/44, International Monetary Fund.

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    Keywords

    Remittances; Real exchange rate; Dutch disease; Competitiveness; Bayesian analysis; Pakistan;

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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