Real exchange rates and remittance inflows in Jamaica

Adian McFarlane, Leanora Brown and Anupam Das

The Journal of International Trade & Economic Development, 2022, vol. 31, issue 8, 1224-1242

Abstract: Large remittance inflows (remittances) can have several positive economic impacts, but they can also lead to real exchange rate appreciation and a loss of international competitiveness for recipient countries, or the Dutch disease effect of remittances. Using Jamaican data from 1977 to 2019, we test for the existence of this effect. After applying autoregressive bounds and Granger causality testing, we arrive at three findings. First, there is a long run cointegrating relationship running from remittances to the real exchange rate, where 64% of any perturbation from this relationship is corrected within one year. Second, we find that a 1% increase in remittances leads to a 0.53% appreciation of the real exchange rate in the long run. The Dutch disease effect exists in Jamaica. Third, consistent with the long run results, we find that remittances Granger cause the real exchange rate in the short run. An important policy implication of our findings is that the Jamaican government should channelize remittances to capital investment in the tradeable sector, while focusing on improving trade competitiveness to compensate for the deterioration of the country's terms of trade due to remittances’ impact on the real exchange rate.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09638199.2022.2072938 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:31:y:2022:i:8:p:1224-1242

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RJTE20

DOI: 10.1080/09638199.2022.2072938

Access Statistics for this article

The Journal of International Trade & Economic Development is currently edited by Pasquale Sgro, David E.A. Giles and Charles van Marrewijk

More articles in The Journal of International Trade & Economic Development from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().