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Are Workers' Remittances a Hedge Against Macroeconomic Shocks? The Case of Sri Lanka

Author/Editor: Lueth, Erik | Ruiz-Arranz, Marta
Authorized for Distribution: February 1, 2007
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We estimate a vector error correction (VEC) model for Sri Lanka to determine the response of remittance receipts to macroeconomic shocks. This is the first attempt of its kind in the literature. We find that remittance receipts are procyclical and decline when the island's currency weakens, undermining their usefulness as shock absorber. On the other hand, remittances increase in response to oil price shocks, reflecting the fact that most overseas. Sri Lankan are employed in the Gulf states. The procyclicality of remittances calls into question the notion that remittances are largely motivated by altruism.
 
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Series: Working Paper No. 07/22
Subject(s): Workers remittances | Sri Lanka | Business cycles | Economic conditions | Economic models
Author's keyword(s): Workers' remittances | cyclicality | macroeconomic shock | Vector Error Correction Model
 
English  
    Published:   February 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007022   Pages:   14
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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