The role of exchange rate in remittance inflows: Evidence from Indonesia

Haryo Kuncoro ()
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Haryo Kuncoro: Faculty of Economics, State University of Jakarta, Indonesia

Economics Bulletin, 2020, vol. 40, issue 2, 1508-1521

Abstract: This paper attempts to analyze the economic importance of the exchange rate in Indonesia based on the question of whether the exchange rate determines the remittance inflows. Estimation of quarterly time series data for 2005(1)-2018(4) presents that remittance inflows and exchange rate are co-integrated and bi-directional Granger-causality. The results of ARDL present that remittance inflows are pro-cyclical both in the short- and the long-run, implying that remittance inflows are motivated by altruism or family arrangement. However, the home currency depreciation induces overseas workers to send more money. Asymmetrically, when the home currency appreciates, the overseas workers do not reduce their remit. Given the huge flows of remittance to Indonesia, the impact of remittances on the supply of foreign exchange should be a major concern for monetary authority. To stabilize the exchange rate and to maintain sufficient international reserve, improving the competitiveness of migrant workers should be an integral part of the macroeconomic policy.

Keywords: Remittances; Exchange Rate; Cyclicality; Asymmetric Respond; ARDL (search for similar items in EconPapers)
JEL-codes: E2 F2 (search for similar items in EconPapers)
Date: 2020-06-02
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Citations: View citations in EconPapers (2)

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