Do Remittances Facilitate a Sustainable Current Account?

20 Pages Posted: 10 Nov 2016

See all articles by Gazi Hassan

Gazi Hassan

University of Waikato

Mark J. Holmes

University of Waikato - Management School, Department of Economics

Date Written: November 2016

Abstract

We examine how workers' remittances impact on the current account. In doing so, we focus on how remittances affect the sustainability rather than the size of current account balances. We find that the presence of remittances makes it more likely that exports and imports are cointegrated, thereby lending support to current account sustainability. Furthermore, quantile regression analysis suggests that increased remittances are associated with a faster speed of current account adjustment towards long‐run equilibrium, particularly for those countries characterised by already highly persistent current account balances. In contrast to a literature that emphasises an adverse Dutch disease impact of workers' remittances on the real exchange rate in terms of reduced external competitiveness, our findings suggest that remittances are actually beneficial to the current account balance.

Suggested Citation

Hassan, Gazi and Holmes, Mark J., Do Remittances Facilitate a Sustainable Current Account? (November 2016). The World Economy, Vol. 39, Issue 11, pp. 1834-1853, 2016. Available at SSRN: https://ssrn.com/abstract=2867196 or http://dx.doi.org/10.1111/twec.12361

Gazi Hassan (Contact Author)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Mark J. Holmes

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

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