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Skilled emigration and exchange rate: theory and empirics

Saumik Paul, Ouyang Alice and Li Rachel Cho Suet

No 484, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: In this paper we build a theoretical model on the wage effect of skilled emigration to the fluctuations in real exchange rate through the relative prices of nontradables. Our theoretical model predicts that skilled emigration is associated with an increase in the prices of nontradable, which in turn appreciates the exchange rate. We provide robust empirical support to a higher skilled emigration associated with higher prices in nontradables and appreciation of the real effective exchange rate. Based on two samples of countries with 51 and 67 observations, in 1990 and 2000 respectively, we find robust empirical support to a higher skilled emigration associated with higher prices in nontradables and appreciation of the REER. In addition, the support for the remittance-channel of the Dutch disease is also significant; overall, our findings corroborate the remittance-based Dutch disease phenomenon by providing an additional channel through which the labor mobility across borders affects the real exchange rate volatility.

Keywords: Migrant labor; Wages; Emigrant remittances; Foreign exchange; International finance; Migration; Emigration; Exchange Rate; The Dutch Disease (search for similar items in EconPapers)
JEL-codes: F22 F3 J3 F24 (search for similar items in EconPapers)
Date: 2014-12-01
New Economics Papers: this item is included in nep-mig and nep-opm
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 484. 2014-12-01

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