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Do emigrants’ remittances cause Dutch disease? A developing countries case study

Published online by Cambridge University Press:  01 January 2023

Burçak Polat  and
Antonio Rodríguez Andrés
Burçak Polat*
Affiliation:
Siirt University, Turkey
Antonio Rodríguez Andrés
Affiliation:
VŠB – Technical University of Ostrava, Czech Republic
*
Burçak Polat, Department of Economics, Faculty of Business and Economics, Siirt University, Kezer Yerleşkesi Veysel Karani Mahallesi Üniversite Cad. No.1 56100, Merkez, Siirt, Turkey. Email: burcakpolat@siirt.edu.tr
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Abstract

Although the positive socio-economic effects of remittances for recipient countries in the short term are unmistakable, inflows of remittances may at the same time exert adverse effects on the trade competitiveness of an economy, by appreciating the real exchange rate. This phenomenon is characterised as an instance of the ‘Dutch disease’ – the negative impact of windfall revenue inflows on the competitiveness of other tradable sectors and hence on overall economic growth. While the real effect of workers’ remittances on real exchange rates in a recipient economy is still a controversial issue, several studies have analysed evidence for the existence of the ‘Dutch disease’ phenomenon in various sets of countries. The main objective of this study is to examine whether remittance flows have had any adverse effect on the international trade competitiveness of a selected group of developing countries during the period from 1995 to 2014. Using a one-step system Generalised Method of Moments specification within a simultaneous equation approach, it shows that remittance flows depreciate the real exchange rate at their levels and that the lagged value of remittances create the Dutch disease for this country group. In addition, we confirm that while trade openness and world real interest rates contribute to a depreciation in real exchange rates, gross domestic product per capita and net Official Development Aid inflows tend to appreciate real exchange rates. A policy implication is that trade liberalisation policies that lower tariff rates on capital imports and new export-oriented incentive programmes should be accompanied by measures designed to prevent appreciation in the real exchange rate: steps in this direction such as recent macroeconomic and prudential capital flow management initiatives are briefly referenced.

Keywords

F20F21F22F23Exchange rateinternational migrationremittances
Type
Post-crisis rebuilding: national perspectives
Information
The Economic and Labour Relations Review , Volume 30 , Issue 1: Symposia: Post-Crisis Rebuilding: Job Quality, Job Security and the Law , March 2019 , pp. 59 - 76
Copyright
© The Author(s) 2019

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