IDEAS home Printed from https://ideas.repec.org/a/mes/emfitr/v55y2019i15p3682-3707.html
   My bibliography  Save this article

The Impact of Remittances on Exchange Rate and Money Supply: Does “Openness” Matter in Developing Countries?

Author

Listed:
  • Jounghyeon Kim

Abstract

Using a perfect-foresight general equilibrium monetary model, this article explores the impact of migrants’ remittances on exchange rate and money supply in developing countries and the effect of their “openness” on the impact. The findings indicate that the inflow of remittances leads to appreciation of the nominal exchange rate and increase of money supply under the fixed exchange rate regime. Moreover, a greater degree of openness helps mitigate the appreciation. These findings suggest that remittances and the degree of openness play a significant role in complementing monetary and exchange rate policy, helping to boost economic development. Using a sample of 114 developing countries from 1970 to 2013, empirical tests with both Anderson-Hsiao with instrumental variables and system generalized method of moments’ estimations confirm the theoretical findings.

Suggested Citation

  • Jounghyeon Kim, 2019. "The Impact of Remittances on Exchange Rate and Money Supply: Does “Openness” Matter in Developing Countries?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(15), pages 3682-3707, December.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:15:p:3682-3707
    DOI: 10.1080/1540496X.2018.1547963
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1540496X.2018.1547963
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1540496X.2018.1547963?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carlos Vargas‐Silva, 2009. "The Tale of Three Amigos: Remittances, Exchange Rates, and Money Demand in Mexico," Review of Development Economics, Wiley Blackwell, vol. 13(1), pages 1-14, February.
    2. Adams, Richard Jr. & Page, John, 2005. "Do international migration and remittances reduce poverty in developing countries?," World Development, Elsevier, vol. 33(10), pages 1645-1669, October.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    4. Nguyen, Tuan & Locke, Stuart & Reddy, Krishna, 2015. "Ownership concentration and corporate performance from a dynamic perspective: Does national governance quality matter?," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 148-161.
    5. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
    6. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
    7. Giuliano, Paola & Ruiz-Arranz, Marta, 2009. "Remittances, financial development, and growth," Journal of Development Economics, Elsevier, vol. 90(1), pages 144-152, September.
    8. Pablo Fajnzylber & J. Humberto López, 2008. "Remittances and Development : Lessons from Latin America," World Bank Publications - Books, The World Bank Group, number 6911.
    9. Christian Nsiah & Bichaka Fayissa, 2013. "Remittances and economic growth in Africa, Asia, and Latin American-Caribbean countries: a panel unit root and panel cointegration analysis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(3), pages 424-441, July.
    10. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 611-630, August.
    11. Emmanuel K. K. Lartey, 2017. "Exchange Rate Flexibility and the Effect of Remittances on Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 21(1), pages 103-125, February.
    12. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    13. Singer, David Andrew, 2010. "Migrant Remittances and Exchange Rate Regimes in the Developing World," American Political Science Review, Cambridge University Press, vol. 104(2), pages 307-323, May.
    14. Mandelman, Federico S., 2013. "Monetary and exchange rate policy under remittance fluctuations," Journal of Development Economics, Elsevier, vol. 102(C), pages 128-147.
    15. Jeffrey Frankel, 2011. "Are Bilateral Remittances Countercyclical?," Open Economies Review, Springer, vol. 22(1), pages 1-16, February.
    16. Chami Ralph & Hakura Dalia S. & Montiel Peter J., 2012. "Do Worker Remittances Reduce Output Volatility in Developing Countries?," Journal of Globalization and Development, De Gruyter, vol. 3(1), pages 1-25, June.
    17. Beine, Michel & Lodigiani, Elisabetta & Vermeulen, Robert, 2012. "Remittances and financial openness," Regional Science and Urban Economics, Elsevier, vol. 42(5), pages 844-857.
    18. Emmanuel K. K. Lartey & Federico S. Mandelman & Pablo A. Acosta, 2012. "Remittances, Exchange Rate Regimes and the Dutch Disease: A Panel Data Analysis," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 377-395, May.
    19. Serdar Sayan, 2004. "Guest Workers' Remittances and Output Fluctuations in Host and Home Countries : The Case of Remittances from Turkish Workers in Germany," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 40(6), pages 68-81, November.
    20. Maurizio Bussolo & María Soledad Martínez Peria & César Calderón & Yira Mascaró & Mette E. Nielsen & Pablo Acosta & J. Humberto López & Çaglar Özden & Yoko Niimi & Luis Molina & Florencia Moizeszowicz, 2008. "Remittances and Development: Lessons from Latin America," IDB Publications (Books), Inter-American Development Bank, number 59678 edited by J. Humberto López & Pablo Fajnzylber, February.
    21. Ziesemer, Thomas H.W., 2012. "Worker remittances, migration, accumulation and growth in poor developing countries: Survey and analysis of direct and indirect effects," Economic Modelling, Elsevier, vol. 29(2), pages 103-118.
    22. Balli, Faruk & Balli, Hatice O., 2011. "Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid," Economic Modelling, Elsevier, vol. 28(4), pages 1642-1649, July.
    23. Michael Gapen & Thomas Cosimano & Ralph Chami, 2006. "Optimal Fiscal and Monetary Policy in the Presence of Remittances," Computing in Economics and Finance 2006 34, Society for Computational Economics.
    24. repec:dgr:unumer:2008063 is not listed on IDEAS
    25. Giulia Bettin & Alberto Zazzaro, 2012. "Remittances And Financial Development: Substitutes Or Complements In Economic Growth?," Bulletin of Economic Research, Wiley Blackwell, vol. 64(4), pages 509-536, October.
    26. B. Gabriela Mundaca, 2009. "Remittances, Financial Market Development, and Economic Growth: The Case of Latin America and the Caribbean," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 288-303, May.
    27. Acosta, Pablo, 2006. "Labor supply, school attendance, and remittances from international migration : the case of El Salvador," Policy Research Working Paper Series 3903, The World Bank.
    28. Emmanuel K. K. Lartey, 2011. "Financial Openness and the Dutch Disease," Review of Development Economics, Wiley Blackwell, vol. 15(3), pages 556-568, August.
    29. David J. McKenzie & Nicole Hildebrandt, 2005. "The Effects of Migration on Child Health in Mexico," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2005), pages 257-289, August.
    30. Mamun, Md. Al & Sohag, Kazi & Uddin, Gazi Salah & Shahbaz, Muhammad, 2015. "Remittance and domestic labor productivity: Evidence from remittance recipient countries," Economic Modelling, Elsevier, vol. 47(C), pages 207-218.
    31. Catrinescu, Natalia & Leon-Ledesma, Miguel & Piracha, Matloob & Quillin, Bryce, 2009. "Remittances, Institutions, and Economic Growth," World Development, Elsevier, vol. 37(1), pages 81-92, January.
    32. HwaJung Choi, 2007. "Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines," The World Bank Economic Review, World Bank, vol. 21(2), pages 219-248, May.
    33. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    34. Hanson, Gordon H., 2007. "Emigration, Remittances and Labor Force Participation in Mexico," IDB Publications (Working Papers) 2637, Inter-American Development Bank.
    35. Miguel D. Ramirez & Hari Sharma, 2009. "Remittances and Growth in Latin America: A Panel Unit Root and Panel Cointegration Analysis," Estudios Economicos de Desarrollo Internacional, Euro-American Association of Economic Development, vol. 9(1).
    36. Acosta, Pablo A. & Lartey, Emmanuel K.K. & Mandelman, Federico S., 2009. "Remittances and the Dutch disease," Journal of International Economics, Elsevier, vol. 79(1), pages 102-116, September.
    37. Mr. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances: How Do Migrant Workers Respond to Cyclical Movements of GDP At Home?," IMF Working Papers 2006/052, International Monetary Fund.
    38. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    39. Acosta, Pablo & Fajnzylber, Pablo & Lopez, J. Humberto, 2007. "The impact of remittances on poverty and human capital : evidence from Latin American household surveys," Policy Research Working Paper Series 4247, The World Bank.
    40. Christopher P. Ball & Claude Lopez & Javier Reyes, 2013. "Remittances, Inflation and Exchange Rate Regimes in Small Open Economies," The World Economy, Wiley Blackwell, vol. 36(4), pages 487-507, April.
    41. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-918, October.
    42. David McKenzie & Hillel Rapoport, 2011. "Can migration reduce educational attainment? Evidence from Mexico," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1331-1358, October.
    43. Faini, Riccardo, 1994. "Workers Remittances and the Real Exchange Rate: A Quantitative Framework," Journal of Population Economics, Springer;European Society for Population Economics, vol. 7(2), pages 235-245.
    44. Aggarwal, Reena & Demirgüç-Kunt, Asli & Pería, Maria Soledad Martínez, 2011. "Do remittances promote financial development?," Journal of Development Economics, Elsevier, vol. 96(2), pages 255-264, November.
    45. Ceyhun Bora Durdu & Serdar Sayan, 2010. "Emerging Market Business Cycles with Remittance Fluctuations," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 303-325, June.
    46. Michael T. Gapen & Mr. Thomas F. Cosimano & Mr. Ralph Chami, 2006. "Beware of Emigrants Bearing Gifts: Optimal Fiscal and Monetary Policy in the Presence of Remittances," IMF Working Papers 2006/061, International Monetary Fund.
    47. Funkhouser, Edward, 1992. "Migration from Nicaragua: some recent evidence," World Development, Elsevier, vol. 20(8), pages 1209-1218, August.
    48. World Bank, 2016. "Migration and Remittances: Recent Developments and Outlook," Working Papers id:10924, eSocialSciences.
    49. Adams, Richard H. Jr., 2004. "Remittances and poverty in Guatemala," Policy Research Working Paper Series 3418, The World Bank.
    50. Jounghyeon Kim, 2013. "Remittances and Currency Crisis: The Case of Developing and Emerging Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(6), pages 88-111, November.
    51. repec:idb:brikps:59678 is not listed on IDEAS
    52. Emmanuel K. K. Lartey, 2008. "Capital Inflows, Dutch Disease Effects, and Monetary Policy in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 971-989, November.
    53. Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
    54. Gordon H. Hanson, 2007. "Emigration, Remittances and Labor Force Participation in Mexico," IDB Publications (Working Papers) 9371, Inter-American Development Bank.
    55. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jin, Xuejun & Chen, Cheng & Yang, Xiaolan, 2024. "The effect of international media news on the global stock market," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 50-69.
    2. Jahan Abdul Raheem & Gazi M. Hassan & Mark J. Holmes, 2023. "The Impact of Remittances on Monetary Transmission Mechanism in Remittance-recipient Countries: with Focus on Credit and Exchange Rate Channels," Working Papers in Economics 23/06, University of Waikato.
    3. Sima Rani Dey & Faroque Ahmed & Mohammad Tareque & Md. Moniruzzaman, 2024. "Impact of Returnee Remittances on Migrant Households’ Well-Being in Bangladesh," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(6), pages 1545-1572, December.
    4. Hao, Linna & Ahmad, Shabbir & Chang, Hsu-Ling & Umar, Muhammad, 2021. "Knowledge spill-over and institutional quality role in controlling Dutch disease: A case of BRICS countries," Resources Policy, Elsevier, vol. 72(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sena Kimm Gnangnon, 2019. "Remittances Inflows and Trade Policy," Remittances Review, Remittances Review, vol. 4(2), pages 117-142, October.
    2. Acosta, Pablo A. & Lartey, Emmanuel K.K. & Mandelman, Federico S., 2009. "Remittances and the Dutch disease," Journal of International Economics, Elsevier, vol. 79(1), pages 102-116, September.
    3. Jounghyeon Kim, 2013. "Remittances and Currency Crisis: The Case of Developing and Emerging Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(6), pages 88-111, November.
    4. Kim, Jounghyeon, 2021. "Financial development and remittances: The role of institutional quality in developing countries," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 386-407.
    5. Balli, Faruk & Rana, Faisal, 2015. "Determinants of risk sharing through remittances," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 107-116.
    6. Gloria Clarissa O. Dzeha, 2016. "The decipher, theory or empirics: a review of remittance studies," African Journal of Accounting, Auditing and Finance, Inderscience Enterprises Ltd, vol. 5(2), pages 113-134.
    7. Kim, Jounghyeon, 2023. "Does population aging matter for remittances in developing countries?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1038-1056.
    8. Abida Zouheir & Imen Mohamed Sghaier, 2014. "Remittances, Financial Development and Economic Growth: The Case of North African Countries," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(51), pages 137-170, March.
    9. Jude Eggoh & Chrysost Bangake & Gervasio Semedo, 2019. "Do remittances spur economic growth? Evidence from developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(4), pages 391-418, May.
    10. Bettin, Giulia & Paçacı Elitok, Seçil & Straubhaar, Thomas, 2012. "Causes and consequences of the downturn in financial remittances to Turkey: A descriptive approach," Edition HWWI: Chapters, in: Paçacı Elitok, Seçil & Straubhaar, Thomas (ed.), Turkey, migration and the EU, volume 5, pages 133-166, Hamburg Institute of International Economics (HWWI).
    11. Faruk Balli & Faisal Rana, 2014. "Determinants of risk sharing through remittances: cross-country evidence," CAMA Working Papers 2014-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    12. Nahed Zghidi & Imen Mohamed Sghaier & Zouheir Abida, 2018. "Remittances, Institutions, and Economic Growth in North African Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 9(3), pages 804-821, September.
    13. Arusha Cooray & Nabamita Dutta & Sushanta Mallick, 2016. "Does female human capital formation matter for the income effect of remittances? Evidence from developing countries," Oxford Development Studies, Taylor & Francis Journals, vol. 44(4), pages 458-478, October.
    14. Ma, Yechi & Chen, Zhiguo & Shinwari, Riazullah & Khan, Zeeshan, 2021. "Financialization, globalization, and Dutch disease: Is Dutch disease exist for resources rich countries?," Resources Policy, Elsevier, vol. 72(C).
    15. Timo Baas & Silvia Maja Melzer, 2012. "The Macroeconomic Impact of Remittances: A sending country perspective," Norface Discussion Paper Series 2012021, Norface Research Programme on Migration, Department of Economics, University College London.
    16. Giulia Bettin & Andrea F. Presbitero & Nikola L. Spatafora, 2017. "Remittances and Vulnerability in Developing Countries," The World Bank Economic Review, World Bank, vol. 31(1), pages 1-23.
    17. Bahadir, Berrak & Chatterjee, Santanu & Lebesmuehlbacher, Thomas, 2018. "The macroeconomic consequences of remittances," Journal of International Economics, Elsevier, vol. 111(C), pages 214-232.
    18. Hajer Habib, 2023. "Remittances and Labor Supply: Evidence from Tunisia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 1870-1899, June.
    19. Siti Mas’udah, 2020. "Remittances and Lifestyle Changes Among Indonesian Overseas Migrant Workers’ Families in Their Hometowns," Journal of International Migration and Integration, Springer, vol. 21(2), pages 649-665, June.
    20. Vacaflores, Diego E., 2018. "Are remittances helping lower poverty and inequality levels in Latin America?," The Quarterly Review of Economics and Finance, Elsevier, vol. 68(C), pages 254-265.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:emfitr:v:55:y:2019:i:15:p:3682-3707. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MREE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.