Remittances Channel and Fiscal Impact in the Middle East, North Africa, and Central Asia

Yasser Abdih, Ralph Chami, Christian Ebeke and Adolfo Barajas

No 2012/104, IMF Working Papers from International Monetary Fund

Abstract: This paper identifies a remittances channel that transmits exogenous shocks, such as business cycles in remittance-sending countries, to the public finances of remittance-receiving countries. Using panel data for remittance-receiving countries in the Middle East, North Africa, and Central Asia, three types of results emerge. First, remittances appear to be strongly procyclical vis-à-vis sending country income. Second, remittances tend to be spent on consumption of both imported and domestically produced goods, rather than on investment. Third, shocks in the sending countries are transmitted via remittances to the public finances - specifically, tax revenues - of receiving countries. In the case of the 2009 global downturn, this impact was particularly strong for several countries in the Caucasus and Central Asia, whereas in the subsequent recovery in 2010 virtually all receiving countries benefitted from an upturn in remittance-driven tax revenues.

Keywords: WP; remittance inflow; real GDP; remittance determination equation; business cycle; remittance-recipient country; Remittances; Private demand; Tax revenues; Instrumental variables; Panel data; instrumentation equation; remittance channel; remittance flow; remittances model; remittance equation; remittance effect; remittance-source region; remittance ratio; Income; Private consumption; Consumption; Global; Middle East; North Africa (search for similar items in EconPapers)
Pages: 40
Date: 2012-04-01
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Citations: View citations in EconPapers (37)

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