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

February 1, 2007

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.

Subject: Balance of payments, Exchange rates, Foreign exchange, Inward remittances, Oil prices, Outward remittances, Prices, Remittances

Keywords: Cyclicality, exchange rate, Exchange rates, GDP, Global, Inward remittances, Macroeconomic Shock, Oil prices, Outward remittances, remittance, remittance datum, remittance flow, remittance receipt, Remittances, remittances amount, remittances to a CPI shock, remittances to Sri Lanka, Vector Error Correction Model, Workers’ remittances, WP

Pages:
14
Volume:
2007
DOI:
https://doi.org/10.5089/9781451865868.001
Issue:
022
Series:
Working Paper No. 2007/022
Stock No:
WPIEA2007022
ISBN:
9781451865868
ISSN:
1018-5941

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