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Remittances–exchange rate nexus: the U.S.–Mexico case

Author

Listed:
  • Matiur Rahman
  • Andrew Foshee
  • Muhammad Mustafa

    (McNeese State University, USA
    South Carolina State University, USA)

Abstract

This paper studies the long-run and short-run dynamics between emigrants’ nominal inbound remittances in U.S. dollar term to Mexico and the Peso-Dollar nominal exchange rates. Relatively high frequency monthly data from January 1987 through December 2008 are employed. Given the comparatively short sample period, the monthly data partially compensate for implementation of standard cointegration methodology. Empirically, both variables are found nonstationary in levels with I(1) behavior in terms of DF-GLS, Ng-Perron, and KPSS tests. The changes in exchange rate exert more pronounced influences on the changes of remittances in the long run as compared to the converse. Significant short-run interactive net positive feedback effects between the variables are also evidenced. On a net basis, Mexico should pursue an exchange rate policy that would promote remittance inflows from the USA for potential net economic gains without much apprehension of the so called Dutch Disease.

Suggested Citation

  • Matiur Rahman & Andrew Foshee & Muhammad Mustafa, 2013. "Remittances–exchange rate nexus: the U.S.–Mexico case," Journal of Developing Areas, Tennessee State University, College of Business, vol. 47(1), pages 63-74, January-J.
    • Handle: RePEc:jda:journl:vol.47:year:2013:issue1:pp:63-74
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    Citations

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    Cited by:

    1. Akhtar, Sharmin & Masih, Mansur, 2018. "Does asymmetry matter in the relationship between exchange rate and remittance? Evidence from a remittance recipient country based on ARDL and NARDL," MPRA Paper 91764, University Library of Munich, Germany.
    2. Éric Rougier & Nicolas Yol, 2019. "The volatility effect of diaspora's location," The World Economy, Wiley Blackwell, vol. 42(6), pages 1796-1827, June.
    3. Eric Rougier & Nicolas Yol, 2018. "The volatility effect of diaspora’s location: A migration portfolio approach," Cahiers du GREThA (2007-2019) 2018-09, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    4. Apergis, Nicholas & Cooray, Arusha, 2018. "Asymmetric real exchange rates and poverty: The role of remittances," Emerging Markets Review, Elsevier, vol. 35(C), pages 111-119.
    5. Abdilahi Ali & Baris Alpaslan, 2017. "Is There an Investment Motive Behind Remittances? Evidence From Panel Cointegration," Journal of Developing Areas, Tennessee State University, College of Business, vol. 51(1), pages 63-82, January-M.

    More about this item

    Keywords

    Remittances; Exchange Rate; Cointegration; Causality; Feedbacks;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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