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UNU-WIDER Remittances and the Macroeconomy: The Case of Small Island Developing States

Support functions

A teenager wears torn rubber boots in a muddy local market in Bac Ha, Viet Nam. As of 2005 figures, half the world population—more than 3 billion people–is estimated to live on less than USD 2.50 a day. Bac Ha, Viet Nam. UN Photo/Kibae Park.

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Remittances and the Macroeconomy: The Case of Small Island Developing States

In this paper we examine how remittances relate to the exchange rate, natural disasters and foreign aid in developing economies. By using panel VAR methods we are able to compensate for both data limitations and endogeneity among variables. We find that while foreign aid tends to appreciate the real exchange rate, remittances do not have the same impact. We also detect an inverse relationship between the real exchange rate and remittance amounts, with real exchange rate depreciation increasing remittance inflows. Of particular interest is the observation that the small island developing states subsample of countries behave differently from the full sample of developing countries in a number of ways. Of note is the differing impact of disaster shocks on the real exchange rate and on the level of remittances across the two samples.
Publisher:
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2007/22
Title:
Remittances and the Macroeconomy: The Case of Small Island Developing States
Authors:
Catalina Amuedo-Dorantes, Susan Pozo, and Carlos Vargas-Silva
Publication date:
April 2007
ISSN Web:
1810-2611
ISBN Web:
9291909610
ISBN 13 Web:
9789291909612
Copyright holder:
© UNU-WIDER
Copyright year:
2007
Keywords:
remittances, natural disasters, small island developing states, migration
JEL:
F24, O19
Project:
Fragility and Development
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the project by The Australian Agency for International Development (AusAID), the Finnish Ministry for Foreign Affairs, and the UK Department for International Development-DFID.
Format:
online

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