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How Do Workers' Remittances Respond to Lending Rates?

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Abstract

We develop a simple model of altruistic transfer and debt-repayment showing that for plausible parameter values, the long-run effect of a change in real lending rates on remittance sending may be negative. Using data for a sample of eighty countries over a 1995-2014 study period, estimation by panel ARDL confirms a negative long-run role for real lending rates. We also find that remittance sending is more sensitive to real rates in the case of the high remittance-receiving countries, while less sensitive in the case of low remittance-receiving countries. An analysis of the dynamics of adjustment suggests that the short-run impact of interest rate changes on remittances is very limited.

Suggested Citation

  • Gazi M. Hassan & Mark J. Holmes, 2017. "How Do Workers' Remittances Respond to Lending Rates?," Working Papers in Economics 17/02, University of Waikato.
  • Handle: RePEc:wai:econwp:17/02
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    More about this item

    Keywords

    remittances; real interest rates; panel ARDL;

    JEL classification:

    • F0 - International Economics - - General
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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