63 Pages Posted: 19 Apr 2006
Date Written: January 2006
This paper combines the literature on financial crises with that on international migrations by investigating whether the increasingly large flows of workers' remittances can help reduce the probability of current account reversals. The rationale for this stands in the great stability and low cyclicality of remittances as compared to other private capital flows: these properties, combined with the fact that remittances are cheap inflows of foreign currencies, might reduce the probability that external financing gets restrained triggering a sharp current account adjustment. We find that remittances can indeed have such a beneficial effect. In particular, we show that a high level of remittances, as a ratio of GDP, makes the relationship between a decreasing stock of international reserves (over GDP) and a higher probability of current account reversals less stringent. The same occurs, though less neatly, for the positive relationship between an increasing stock of external debt (over GDP) and the probability of reversals. Our results point also to a threshold effect of remittances: the mechanism just described is, in fact, much stronger when remittances are above 3 percent of GDP.
Notes: Downloadable document is in Italian.
Keywords: crisi finanziarie, current account reversal, rimesse dei lavoratori emigrati
JEL Classification: F32, F36, J61, O1
Suggested Citation: Suggested Citation
Bugamelli, Matteo and Paternò, Francesco, Workers' Remittances and Current Account Reversals (January 2006). Bank of Italy Economic Research Paper No. 573. Available at SSRN: https://ssrn.com/abstract=895508 or http://dx.doi.org/10.2139/ssrn.895508