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Do received remittances cause Dutch disease in developed and developing countries?

Author

Listed:
  • Faris Alshubiri
  • Samia Fekir
  • Billal Chikhi

Abstract

Purpose - The present study aimed to examine the effect of received remittance inflows on the price level ratio of the purchasing power parity conversion factor to the market exchange rate in 36 developed and developing countries from 2004 to 2020. Design/methodology/approach - The panel data conducted a comparative analysis and used panel least squares, regression with Driscoll-Kraay standard errors of fixed effect, random effect, feasible generalised least squares and maximum likelihood robust least squares to overcome the heterogeneity issue. Furthermore, the two-step difference generalised method of moments to overcome the endogeneity issue. Diagnostic tests were used to increase robustness. Findings - In the studied countries, there was a statistically significant negative relationship between received remittance inflows and the price-level ratio of the purchasing power parity conversion factor to the market exchange rate. This relationship explains why remittance flows depreciate the real exchange rate. The study’s results also indicated that attracting investments can improve the quality of institutions despite high tax rates, leading to low tax revenue. Originality/value - The current study findings enrich the understanding of policies of how governments should minimise tariff rates on capital imports and introduce export-oriented incentive programmes. The study also revealed that Dutch disease can occur due to differences in the demand structure and manufacturing development policy.

Suggested Citation

  • Faris Alshubiri & Samia Fekir & Billal Chikhi, 2024. "Do received remittances cause Dutch disease in developed and developing countries?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 51(7), pages 1373-1392, January.
  • Handle: RePEc:eme:jespps:jes-09-2023-0496
    DOI: 10.1108/JES-09-2023-0496
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    More about this item

    Keywords

    Received remittances; Real exchange rate; Dutch disease; Equilibrium of exchange rate theory; F20; F21; F22;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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