Are workers' remittances a hedge against macroeconomic shocks? The case of Sri Lanka

Erik Lueth and Marta Ruiz-Arranz ()
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Erik Lueth: International Monetary Fund.
Marta Ruiz-Arranz: International Monetary Fund.

Asia-Pacific Development Journal, 2007, vol. 14, issue 1, 25-39

Abstract: This paper estimates a vector error correction model for Sri Lanka in order to determine the response of remittance receipts to macroeconomic shocks. This is the first attempt of its kind in the literature. The authors found that remittance receipts are pro-cyclical and decline when the country’s currency weakens, undermining their usefulness as a 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 Persian Gulf States. The pro-cyclicality of remittances calls into question the notion that remittances are largely motivated by altruism.

Keywords: Workers' remittances; cyclicality; macroeconomic shock; vector error correction model (search for similar items in EconPapers)
JEL-codes: C22 F22 F30 J61 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:unt:jnapdj:v:14:y:2007:i:1:p:25-39

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