Remittances and the Dutch Disease

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The authors thank Enrique Mendoza, Kolver Hernández, Peter Ireland, Gabriel Montes-Rojas, José Pineda, Rob Vigfusson, Diego Vilán, Carlos Zarazaga, and seminar participants at the Inter-American Development Bank, the Atlanta Fed, the SCIEA meetings at the Philadelphia Fed, California State University-Fullerton, LACEA-LAMES, SEA, CCMS, the University of Torcuado Di Tella, the Central Bank of Argentina, and the Central Bank of the Philippines for helpful comments. Sergio Guerra and M. Laurel Graefe provided superb research assistance. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve System, or the World Bank. Any remaining errors are the authors' responsibility. Abstract: Using data for El Salvador and Bayesian techniques, we develop and estimate a two-sector dynamic stochastic general equilibrium model to analyze the effects of remittances in emerging market economies. We find that, whether altruistically motivated or otherwise, an increase in remittance flows leads to a decline in labor supply and an increase in consumption demand that is biased toward nontradables. The higher nontradable prices serve as incentive for an expansion of that sector, culminating in reallocation of labor away from the tradable sector; a phenomenon known as the Dutch disease. Quantitative results also indicate that remittances improve households' welfare as they smooth income flows and increase consumption and leisure levels. A Bayesian vector autoregression analysis provides results that are consistent with the dynamics of the model. JEL classification: F40 F41 O10 Terms of use: Documents in

Remittances and public finances: Evidence from oil-price shocks

“…Evidence concerning the macroeconomic effects of remittances is inconclusive. 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).…”

“…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.…”

The Macroeconomic Consequences of Remittances

“…However, since recipient households should respond to the increased inflow of funds-increased income-by "purchasing" more leisure as well as more consumption, the initial contribution to output could well be ameliorated or overturned. While a variety of studies have shown that remittances have a negative effect on the work effort of the receiving household (i.e., Funkhouser [6], Chami et al [8], Acosta et al [5], and Hanson [7]) this result is being challenged. Jansen and Vacaflores [9] indicate that if one considers that remittances are not just a gift from relatives but is in fact a household decision regarding labor allocation, then these inflows may not have as a large bearing on the household's domestic work effort and, consequently, on domestic production.…”

“…While recent research has shed some light on their potential influence on consumption and inflation (Narayan et al [2] and Vacaflores [3]), on the exchange rate and trade competitiveness (Amuedo-Dorantes and Pozo [4] and Acosta et al [5]), on labor supply (Funkhouser [6], Hanson [7], Chami et al [8], Acosta et al [5] and Jansen and Vacaflores [9]), on economic growth (Cáceres and Saca [10] and Osili [11]), and on policy responses (Chami et al [8], Mandelman [12] and Vacaflores [3]), little attention has been placed on the potentially different effect that remittances shocks can have on the main macroeconomic aggregates depending on the distribution of remittances between consumption and investment, on the relative importance of remittances as a share of GDP, and on its relative importance in terms of income.…”

Remittances, ICT and Doing Business in Sub-Saharan Africa

“…These include the following channels: exchange rate (see Rajan & Subramanian, 2005;Lartey et al, 2008;Acosta et al, 2009;Barajas et al, 2009;Selaya & Thiele, 2010;Dzansi, 2013;Amuedo-Dorantes, 2014) and financial sector development (Aggarwal et al, 2011;Bettin et al, 2012;Osabuohien & Efobi, 2013;Efobi et al, 2014;Kaberuka & Namubiru, 2014;Karikari et al, 2016;Efobi et al, 2016).…”