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Are workers' remittances a hedge against macroeconomic shocks? The case of Sri Lanka

Author

Listed:
  • Erik Lueth

    (International Monetary Fund.)

  • Marta Ruiz-Arranz

    (International Monetary Fund.)

Abstract

This paper estimates a vector error correction model for Sri Lanka in order to determine the response of remittance receipts to macroeconomic shocks. This is the first attempt of its kind in the literature. The authors found that remittance receipts are pro-cyclical and decline when the country’s currency weakens, undermining their usefulness as a shock absorber. On the other hand, remittances increase in response to oil-price shocks, reflecting the fact that most overseas Sri Lankan are employed in the Persian Gulf States. The pro-cyclicality of remittances calls into question the notion that remittances are largely motivated by altruism.

Suggested Citation

  • Erik Lueth & Marta Ruiz-Arranz, 2007. "Are workers' remittances a hedge against macroeconomic shocks? The case of Sri Lanka," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 14(1), pages 25-39, June.
    • Handle: RePEc:unt:jnapdj:v:14:y:2007:i:1:p:25-39
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    1. 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.
    2. El-Sakka, M. I. T. & McNabb, Robert, 1999. "The Macroeconomic Determinants of Emigrant Remittances," World Development, Elsevier, vol. 27(8), pages 1493-1502, August.
    3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
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    Cited by:

    1. Komivi Afawubo & Mawuli Kodjovi Couchoro, 2017. "Do remittances enhance the economic growth effect of private health expenditures in West African Economic and Monetary Union?," Post-Print hal-01716433, HAL.
    2. Yousaf Zaman & Khair-Uz-Zaman & Shadiullah Khan, 2014. "Macro Level Determinants of Remittances to Pakistan," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(3), pages 142-155.
    3. Jean-Louis COMBES & Christian EBEKE & Mireille NTSAMA ETOUNDI, 2011. "Are Foreign Aid and Remittances a Hedge against Food Price Shocks in Developing Countries?," Working Papers 201121, CERDI.
    4. Farid Farid, 2014. "The impact of exchange rate policy on remittances in Morocco: A Threshold VAR analysis," Economics Bulletin, AccessEcon, vol. 34(4), pages 2351-2360.
    5. Jamal Bouoiyour & Refk Selmi & Amal Miftah, 2019. "The relationship between remittances and macroeconomic variables in times of political and social upheaval: Evidence from Tunisia's Arab Spring," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(2), pages 355-394, February.
    6. 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).
    7. Combes, Jean-Louis & Kinda, Tidiane & Ouedraogo, Rasmané & Plane, Patrick, 2019. "Financial flows and economic growth in developing countries," Economic Modelling, Elsevier, vol. 83(C), pages 195-209.
    8. Alexandru STRATAN & Marcel CHISTRUGA, 2011. "Remittances in the Republic of Moldova:Lost opportunities," Romanian Journal of Economics, Institute of National Economy, vol. 32(1(41)), pages 5-18, June.
    9. Farid Makhlouf & Refk Selmi, 2021. "The role of remittances in times of socio-political unrest: Evidence from Tunisia," Working Papers hal-03263815, HAL.
    10. Combes, Jean-Louis & Ebeke, Christian Hubert & Etoundi, Sabine Mireille Ntsama & Yogo, Thierry Urbain, 2014. "Are Remittances and Foreign Aid a Hedge Against Food Price Shocks in Developing Countries?," World Development, Elsevier, vol. 54(C), pages 81-98.
    11. 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.
    12. Jean-Louis COMBES & Patrick PLANE & Tidiane KINDA, 2010. "Capital Flows and their Impact on the Real Effective Exchange Rate," Working Papers 201032, CERDI.
    13. Leonida Correia & Patrícia Martins, 2019. "Has the sovereign debt crisis changed the cyclicality of Portuguese remittances?," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(3), pages 453-472, May.
    14. Mazhar Y. Mughal & Junaid Ahmed, 2014. "Remittances and Business Cycles: Comparison of South Asian Countries," International Economic Journal, Taylor & Francis Journals, vol. 28(4), pages 513-541, December.
    15. Dean Yang, 2011. "Migrant Remittances," Journal of Economic Perspectives, American Economic Association, vol. 25(3), pages 129-152, Summer.
    16. Neagu , Ileana C. & Schiff, Maurice, 2009. "Remittance stability, cyclicality and stabilizing impact in developing countries," Policy Research Working Paper Series 5077, The World Bank.
    17. International Monetary Fund, 2012. "Are Foreign Aid and Remittance Inflows a Hedge Against Food Price Shocks?," IMF Working Papers 2012/067, International Monetary Fund.
    18. Abbas, Shujaat, 2020. "Impact of oil prices on remittances to Pakistan from GCC countries: evidence from panel asymmetric analysis," MPRA Paper 107246, University Library of Munich, Germany.
    19. Roland-Holst, David & Karymshakov, Kamalbek & Sulaimanova, Burulcha & Sultakeev, Kadyrbek, 2022. "ICT, Online Search Behavior, and Remittances: Evidence from the Kyrgyz Republic," ADBI Working Papers 1348, Asian Development Bank Institute.

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    More about this item

    Keywords

    Workers' remittances; cyclicality; macroeconomic shock; vector error correction model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F30 - International Economics - - International Finance - - - General
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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