Remittances and Real Effective Exchange Rate

Abstract

Remittances in India have been growing rapidly since 1991. Most of the studies find that remittance has had a significant impact on real effective exchange rate (REER). It is imperative to evaluate the impact of a transfer such as remittance and aid on country's competitiveness. This article is an attempt to investigate the impact of workers' remittances and some selected macro-variables on REER of India using annual data from 1980-2015. The study conducted autoregressive distributive lag (ARDL) bound test co-integration approach to explore this longrun relationship. The ARDL bound test approach confirms significant long-run relationships among the selected variables at 1 per cent level of significance. In addition to this, the ARDL short-run error correction model implies that while REER may temporarily deviate from its long-run equilibrium, the deviations adjust towards the equilibrium level in the long run. JEL: F31, F35, F41

Time-frequency nexus between remittances, exchange rates, and growth in Vietnam

“…As a result, we can expect that the rise in REM will result in either currency appreciation or depreciation. These findings are in line with the analysis of Dutta and Sengupta (2018), Kuncoro (2020), Mohammed and Ahmed (2021), Khan et al (2021), andJoof andTouray (2021), who report that the influence of remittances on exchange rates is statistically significant. Pant and Budha (2016) use a theoretical model and suggest that remittances cause currency appreciation, particularly when a nation has limited trade and capital openings.…”

“…This is a vital conclusion because it uncovers that the role of remittances and exchange rate in the growth process would be ever present in the taking economic policy decision of Vietnam as well as the exchange rate policy. These outcomes are in line with studies of Hanslin Grossmann et al ( 2016), Jovic et al (2019), Dutta and Sengupta (2018), Mohammed and Ahmed (2021), Rausser et al (2018), Olayungbo and Quadri (2019), Kumar et al (2018) and Jongwanich and Kohpaiboon (2019). Moreover, given the significant coherence existing between EX, REM and GDP, the decision in connection with the latter might have crucial consequences on the dynamics of the economic system.…”

“…Two strands of economic literature link exchange rates and remittances. The first channel is dependent on how remittances affect exchange rates; remittances give rise to exchange rate hypotheses (Essayyad et al, 2018;Dutta and Sengupta, 2018). How is the universally acknowledged fact that a rise in remittances causes a better balance of payments by significantly narrowing the deficit in the current account and then spurring GDP growth?…”

“…According to Essayyad et al (2018), growing remittance inflows cause Nepal's currency to appreciate over the long term while depreciating over the short term. In a similar fashion, Dutta and Sengupta (2018) use the ARDL model to estimate the longterm nexus between remittances and exchange rates in India and provide evidence of significant long-run relationships between these indicators. Kuncoro (2020) documents that exchange rates and remittances are co-integrated and bidirectional causality and that both in the short run and the long run, remittance inflows have a pro-cyclical effect on the Indonesian economy.…”

Economic Growth, Exchange Rate and Remittance Nexus: Evidence from Africa

“…For instance, an increase in domestic currency by a way of appreciation could lead to a significant decrease in remittance received. This suggests that exchange rate fluctuation can alter remittance receipt, thereby affecting economic growth (Bayangos and Jansen 2011;Dutta and Sengupta 2018;Rabbi et al 2013). The effect on trade and agriculture, for instance, can be seen from an overvalued currency view, which can impose adverse consequences for economic growth by discouraging export competitiveness and imposing upward pressure on the current account (Apergis and Cooray 2018).…”