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The Impact of Remittances on the Exchange Rate: Empirical Analysis of The Gambia

Author

Listed:
  • Ceesay, Habib
  • Limbe, Medad

Abstract

Remittances are crucial to The Gambian economy, providing a major source of foreign exchange and sustaining the livelihoods of numerous households. In addition, they help in offsetting trade deficit and stabilize the country's external position. However, substantial external inflows into developing economies can lead to an appreciation of the domestic currency, making exports more expensive and reducing competitiveness. This study investigates the impact of remittances on the real effective exchange rate in The Gambia using monthly data from January 2009 to December 2019. Employing the Autoregressive Distributive Lag (ARDL) model, the study finds evidence of a long run cointegrating relationship among the variables. The empirical results reveal that remittance inflows have a positive significant effect on the real effective exchange rate in the long run, indicating that higher remittances lead to an appreciation of the Gambian Dalasi.

Suggested Citation

  • Ceesay, Habib & Limbe, Medad, 2024. "The Impact of Remittances on the Exchange Rate: Empirical Analysis of The Gambia," MPRA Paper 121774, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121774
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    File URL: https://mpra.ub.uni-muenchen.de/121774/1/MPRA_paper_121774.pdf
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    References listed on IDEAS

    as
    1. Joof, Foday & Touray, Sheriff, 2021. "The Impact of Remittance Flow on Real Effective Exchange Rate: Empirical Evidence from The Gambia," MPRA Paper 106045, University Library of Munich, Germany.
    2. Lopez, Humberto & Molina, Luis & Bussolo, Maurizio, 2007. "Remittances and the real exchange rate," Policy Research Working Paper Series 4213, The World Bank.
    3. Gazi M. Hassan & Mark J. Holmes, 2013. "Remittances and the real effective exchange rate," Applied Economics, Taylor & Francis Journals, vol. 45(35), pages 4959-4970, December.
    4. 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.
    5. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Remittance; ARDL; the Gambia; exchange rate;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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