Beyond the Balassa-Samuelson Effect: Do Remittances Trigger the Dutch Disease?. Issue 1 (2nd January 2023)

• Record Type: Journal Article
• Authors: Fisera, Boris; Workie Tiruneh, Menbere
• Is Part Of: Eastern European economics. Volume 61:Issue 1(2023)
• Page Start: 23
• Page End: 65
• Publication Date: 2023-01-02
• Subjects: Remittances -- real exchange rate -- dutch disease -- emerging and developing economies (EMDEs) -- heterogeneous panel cointegration; F30 -- F31 -- F36; Europe, Eastern -- Economic conditions -- Periodicals; 330.947
• DOI: 10.1080/00128775.2022.2102038
• Languages: English
• ISSNs: 0012-8775

Abstract

ABSTRACT: We investigate the impact of remittance inflows on the real exchange rate using a sample of 134 developing and emerging economies. Using heterogeneous panel cointegration approach, we find that remittances contribute to long-term real appreciation of the domestic currency, which is beyond the level implied by the Balassa-Samuelson effect. Consequently, we find evidence that remittances might contribute to triggering the phenomenon of the Dutch disease. We also find evidence for heterogeneity in the effects of remittances on the real exchange rate: having floating exchange rate, higher economic freedom and higher financial development reduces the long-run appreciation due to remittance inflows.