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Macroeconomic Effects of Grants and Remittances

Author

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  • Mihailo Nikolic

    (National Bank of Serbia)

Abstract

Grants and remittances tend to insulate beneficiary countries from movements in the world market, hence enabling them to build up foreign exchange reserves irrespective of their competitiveness, i.e. performance of their economies. Initial effects of these types of transfer manifest primarily as the appreciation of the exchange rate and an increase in labor costs, while the effect of remittances on wage levels is twofold. Indirect effects are manifest above all in terms of the volume and composition of investment and exports. In case of the former, it is important to sterilize monetary effects, while in the latter case it is important to avoid any investment-related decision-making based on signals of temporary character. Majority of empirically found effects of grants on economic growth are rather negative than positive. The same, though to a lesser extent, also applies to remittances. As the volume and growth rate of remittances in Serbia are higher than those of grants, in addition to their stabilizing and social function, they should also acquire a significant investment function.

Suggested Citation

  • Mihailo Nikolic, 2006. "Macroeconomic Effects of Grants and Remittances," Working papers 4, National Bank of Serbia.
    • Handle: RePEc:nsb:wppnbs:4
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