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Remittances and Disaggregated Country Risk Ratings in Tunisia: An ARDL Approach

Dorsaf Srdid () and Wafa Ghardallou ()
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Dorsaf Srdid: Higher Institute of Management of Sousse
Wafa Ghardallou: Princess Noura University

No 1326, Working Papers from Economic Research Forum

Abstract: Tunisia is currently facing political, economic and financial problems that are having an impact on the flow of remittances. This study is the first attempt to give a thorough analysis of two-way relationship between workers’ remittances and disaggregated country risk ratings (such as economic, financial and political risk) in Tunisia in short and the long run, spanning a period 1984-2016. In an attempt to achieve this key objective, an ARDL approach combined with CUSUM and CUSUMSQ tests, Wald test, and Granger causality test are adopted to investigate this linkage. The results show the presence of a long-run relationship. In addition, and with reference to the empirical results it could be deduced that in the long-run, economic risks have a negative impact on remittances, whereas in the short-run, they have a positive impact. The financial risk increases remittances because it includes variables related to remittances such as exchange rate stability. On the other hand, a higher level of remittances carries a higher level of financial risk in the short- and long-run. These results should engage policy-makers to minimize this negative effect and to channel remittances towards investment purposes. Results also indicate that, in response to an increase in remittances, the political risk decreases in the short run but increases in the long run.

Pages: 23 pages
Date: 2019-08-21, Revised 2019-08-21
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Published by The Economic Research Forum (ERF)

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