Remittances and Dutch Disease: A Meta-Analysis

Remittance flows are an important source of foreign exchange for various developing countries around the world. Given their growing importance in the last decade, their role in inducing Dutch disease symptoms in the developing countries has been extensively studied. However, the results of the analyses so far have been mixed. In this study, we conduct a meta-analysis of existing literature to estimate the over all effect of remittances on receiving countries' real effective exchange rate (REER). We run fixed and random effect meta-analysis on studies taken from EconLit, Google Scholar and various working paper series and examine a total of 53 regressions taken from seven published and unpublished studies. We come up with evidence of a net appreciation of real exchange rate in the developing countries. Both the fixed and random effect models indicate a highly significant impact of foreign remittances on the REER. The results show also that the nature of the dependent variable, countries considered and the econometric technique used influence the impact of remittances REER, However the type of data (panel or times series) does not affect the results. Our investigations support the presence of selection bias. The findings support the view that in spite of their utility for the recipient households, remittances pose a challenge to the developing country on the macroeconomic level.