Publication: Remittances and the Dutch Disease
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Published
2009
ISSN
00221996
Date
2012-03-30
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Using data for El Salvador and Bayesian techniques, we develop and estimate a two-sector dynamic stochastic general equilibrium model to analyze the effects of remittances on emerging market economies. We find that, whether altruistically motivated or otherwise, an increase in remittance flows leads to a decline in labor supply and an increase in consumption demand that is biased toward non-tradables. The higher non-tradable prices serve as incentive for an expansion of that sector, culminating in reallocation of labor away from the tradable sector--a phenomenon known as the Dutch disease. Quantitative results also indicate that remittances improve the welfare of households because they smooth income flows and increase consumption and leisure levels. A BVAR analysis provides results that are consistent with the dynamics of the model.
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Publication Financial Development, Remittances, and Real Exchange Rate Appreciation(2009)For developing countries, remittances are an important and expanding source of capital, equivalent to two-thirds of overall foreign direct investment and nearly 2 percent of gross domestic product. This article examines the relationship between remittance inflows, financial sector development, and the real exchange rate. The authors test whether financial sector development can prevent appreciation of the real exchange rate. In particular, they show that well-developed financial sectors can more effectively channel remittances into investment opportunities. Using panel data for 109 developing and transition countries for 1990-2003, the authors find that remittances by themselves tend to put upward pressure on the real exchange rate. But this effect is weaker in countries with deeper and more sophisticated financial markets, which seem to retain trade competitiveness.Publication What Is the Impact of International Remittances on Poverty and Inequality in Latin America?(2008)Workers' remittances have become a major source of income for developing countries. However, little is still known about their impact on poverty and inequality. Using a large cross-country panel dataset, we find that remittances in Latin American and Caribbean (LAC) countries have increased growth and reduced inequality and poverty. These results are robust to the use of different instruments that attempt to correct for the potential endogeneity of remittances. Household survey-based estimates for 10 LAC countries confirm that remittances have negative albeit relatively small inequality and poverty-reducing effects, even after imputations for the potential home earnings of migrants.Publication Labor Supply, School Attendance, and Remittances from International Migration : The Case of El Salvador(Washington, DC, 2006-04)The objective of this paper is to present microeconomic evidence on the economic effects of international remittances on households' spending decisions. Remittances can increase the household budget and reduce liquidity constraint problems, allowing more consumption and investment. In particular, remittances can afford investing in children's human capital, a key outcome for the discussion of the perspective of growth in a high recipient developing country. Robust estimates that take into account both selection and endogeneity problems in estimating an average impact of remittances are substantially different from least squares (OLS) estimates presented in previous studies, indicating the importance of dealing with these methodological concerns. After controlling for household wealth and using selection correction techniques such as propensity score matching as well as village and household networks as instruments for remittances receipts, average estimates suggest that girls and young boys (less than 14 years old) from recipient households seem to be more likely to be enrolled at school than those from nonrecipient households. Remittances are also negatively related to child labor and adult female labor supply, while adult male labor force participation remains unaffected on average. The results signaling that the additional income derived from migration increases girls' education and reduces women's labor supply, with no major impact on activity choice for males 14 years or older, suggest the presence of gender differences in the use of remittances across (and possibly, within) households.Publication Services, Inequality, and the Dutch Disease(World Bank Group, Washington, DC, 2014-07)This paper shows how Dutch disease effects may arise solely from a shift in demand following a natural resource discovery. The natural resource wealth increases the demand for non-tradable luxury services due to non-homothetic preferences. Labor that could be used to develop other non-resource tradable sectors is pulled into these service sectors. As a result, manufactures and other tradable goods are more likely to be imported, and learning and productivity improvements accrue to the foreign exporters. However, once the natural resources diminish, there is less income to purchase the services and non-resource tradable goods. Thus, the temporary gain in purchasing power translates into long-term stagnation. As opposed to conventional models where income distribution has no effect on economic outcomes, an unequal distribution of the rents from resource wealth further intensifies the Dutch disease dynamics within this framework.Publication What is the Impact of International Remittances on Poverty and Inequality in Latin America?(World Bank, Washington, DC, 2007-06)Workers' remittances have become a major source of income for developing countries. However, little is still known about their impact on poverty and inequality. Using a large cross-country panel dataset, the authors find that remittances in Latin American and Caribbean (LAC) countries have increased growth and reduced inequality and poverty. These results are robust to the use of different instruments that attempt to correct for the potential endogeneity of remittances. Household survey-based estimates for 10 LAC countries confirm that remittances have negative albeit relatively small inequality and poverty-reducing effects, even after imputations for the potential home earnings of migrants.
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