Do Remittances Facilitate a Sustainable Current Account?
We examine how workers’ remittances impact on the current account. In doing so, we focus on how remittances affect the sustainability rather than size of current account balances. We find that the presence of remittances make it more likely that exports and imports are cointegrated thereby lending support to weak sustainability where increased remittances are associated with a faster speed of current account adjustment (lower persistence), particularly for those countries characterised by already highly persistent current account balances. We find that remittances are beneficial to the current account balance. This is in contrast to a literature that emphasises an adverse Dutch disease impact of workers’ remittances on the real exchange rate in terms of reduced external competitiveness.
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