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

Migrant Workers' Remittances and External Trade Balance in Sub-Sahara African Countries

“…This underscores the importance of the implications of remittances for real exchange rate movements. Acosta et al (2009) find that in addition to the usual nominal exchange rate channel, remittances result in a shrinkage of, and resource re-allocations away from, the tradable sector through (i) increasing prices in the non-tradable sector, and (ii) reducing the labour supply to, and thereby increasing the production costs of, the otherwise labour-intensive non-tradable sector. Studies in Latin America (Amuedo-Dorantes and Pozo, 2004) and Cape Verde (Bourdet and Falck, 2006) provide additional evidences in support of a Dutch disease effect of remittances on the competitiveness of the tradable sector of the receiving economies.…”

“…The above concerns that massive inflow of remittances to small developing economies could generate a resource allocation from the tradable to the non-tradable sector have been raised in a number of studies (see: McCormick and Wahba, 2000;Amuedo-Dorantes and Pozo, 2004;Lopez et al, 2007;Acosta et al, 2009;etc.). Rodrik (2008) provides evidence that real exchange rate overvaluation undermines long-term economic growth, particularly for developing countries, andin those countries tradable goods production suffers disproportionately from weak institutions and market failures.…”

A Review of HRM Practices and Labor Productivity: Evidence from Libyan Oil Companies

“…However, there is a debate whether this effect lay on micro level or macro level of the economy. The seminal work of McCormick and Wahba (2000) though present a complete utility maximizing decision process of shifting labor from one to anther industry; however, the study failed to account the fact that an optimum decision must compensate the lost production at home, because of potentially high underemployment, an appreciation of the real exchange rate, causing a so-called Dutch disease effect (Acosta et al, 2009;Bourdet & Falck, 2006;Lartey et al, 2008;Vargas-Silva, 2009). Furthermore, McCormick and Wahba (2000)'s decision process is valid only at the micro level, and it does not consider the impact of foreign earning on domestic labor productivity for the recipient countries at the macro level.…”

Remittances and Working Poverty

“…If poor workers are mainly employed in the non-tradable sector, like real estate, their wage will go up. 3 Recent papers have demonstrated the significant impact of remittance inflows on real exchange rate appreciation (Acosta, Lartey, & Mandelman, 2009;Amuedo-Dorantes & Pozo, 2004;Barajas, Chami, Hakura, & Montiel, 2011).…”