Migrant Remittances and Exchange Rate Regimes in the Developing World

Abstract

This article argues that the international financial consequences of immigration exert a substantial influence on the choice of exchange rate regimes in the developing world. Over the past two decades, migrant remittances have emerged as a significant source of external finance for developing countries, often exceeding conventional sources of capital such as foreign direct investment and bank lending. Remittances are unlike nearly all other capital flows in that they are stable and move countercyclically relative to the recipient country's economy. As a result, they mitigate the costs of forgone domestic monetary policy autonomy and also serve as an international risk-sharing mechanism for developing countries. The observable implication of these arguments is that remittances increase the likelihood that policy makers adopt fixed exchange rates. An analysis of data onde factoexchange rate regimes and a newly available data set on remittances for up to 74 developing countries from 1982 to 2006 provides strong support for these arguments. The results are robust to instrumental variable analysis and the inclusion of multiple economic and political variables.

Remittances and public finances: Evidence from oil-price shocks

“…While remittances have been considered as a facilitation of external financing constraints and thus a source of investment for developing countries, they might also trigger Dutch disease phenomenons such as real exchange rate appreciation and, eventually, a weakening of international competitiveness (López et al 2008;Acosta et al 2009). The evidence on the effect of remittances on output growth is also mixed, with some studies showing a positive influence on growth (Giuliano and Ruiz-Arranz 2009) while others do not find such effects (Yang 2011). Singer (2010 finds that inflowing remittances affect exchange-rate regimes, and hence provides evidence that policy in receiving countries is responsive to incoming remittances.…”

“…These large monetary inflows affect microand macroeconomic outcomes in the receiving countries. For example, the literature has demonstrated that remittances affect the quality of governance (Ahmed 2012;Ahmed 2013;Berdiev et al 2013), financial sector development (Giuliano and Ruiz-Arranz 2009;Aggarwal et al 2011), exchange rate regimes (Singer 2010), international competitiveness (López et al 2008;Acosta et al 2009) and schooling decisions (Edwards and Ureta 2003;Alcaraz et al 2012;Ambler et al 2015). 1 Despite their enormous importance, little research exists on the relevance and impact of inflowing remittances for public finances of receiving countries.…”

Financial remittances, trans-border conversations, and the state

“…Whether remittances constitute yet another resource curse that may feed government corruption is another subject on the research agenda (Tyburski, 2012(Tyburski, , 2014. Surprisingly, the impact that remittances may have on governments' policy choices has been less researched (Ketkar & Ratha, 2010;Leblang, 2010;Singer, 2010). In particular, there is practically no evidence as to how governments may alter their provision of social welfare and public goods in the presence of family remittances, which substitute for those goods and provide a form of private insurance (Ebeke, 2011).…”

Remittances and Public Finances: Evidence from Oil-Price Shocks

“…These large monetary inflows affect microand macroeconomic outcomes in the receiving countries. For example, the literature has demonstrated that remittances affect the quality of governance (Ahmed 2012;Ahmed 2013;Berdiev et al 2013), financial sector development (Giuliano and Ruiz-Arranz 2009;Aggarwal et al 2011), exchange rate regimes (Singer 2010), international competitiveness (López et al 2008;Acosta et al 2009) and schooling decisions (Edwards and Ureta 2003;Alcaraz et al 2012;Ambler et al 2015).…”