ArticlePDF Available

The impact of remittance inflows on inflation: Evidence in asian and the pacific developing countries

Authors:

Abstract and Figures

Remittance is one of the most important external sources flowing into developing countries. Many studies have examined the impact of remittances on macroeconomic issues. However, there is a gap of empirical research on the impact of remittances on inflation in Asian and the Pacific developing countries. This study applied such econometrics methods as Ordinary Least Squares (OLS), Two-Stage Least Squares (2-SLS), Panel Generalized Method of Moments (PGMM) and panel Granger causality to investigate this impact. Annual data for the period 1985 – 2013 of 32 developing countries in Asian and the Pacific is used in this study. The results found that remittance inflows significantly increase inflation during the research period and there exists a one-way Granger causality from remittances to inflation.
Content may be subject to copyright.
1
THE IMPACT OF REMITTANCE INFLOWS ON INFLATION: EVIDENCE IN ASIAN AND
THE PACIFIC DEVELOPING COUNTRIES
Le Thanh TUNG
Faculty of Business Administration, Ton Duc Thang University, Vietnam
lethanhtung@tdt.edu.vn
Pham Thi Minh LY
Faculty of Business Administration, Ton Duc Thang University, Vietnam
phamthiminhly@tdt.edu.vn
Pham Thi Quynh NHU
Faculty of Business Administration, Ton Duc Thang University, Vietnam
phamthiquynhnhu@tdt.edu.vn
Pham Tien THANH
Faculty of Business Administration, Ton Duc Thang University, Vietnam
phamtienthanh@tdt.edu.vn
Le Tuan ANH
Faculty of Business Administration, Nguyen Tat Thanh University, Vietnam
tuananhgtvt3@gmail.com
Tran Thi Phi PHUNG
Faculty of Business Administration, Ton Duc Thang University, Vietnam
tranthiphiphung@tdt.edu.vn
Abstract
Remittance is one of the most important external sources flowing into developing countries. Many studies
have examined the impact of remittances on macroeconomic issues. However, there is a gap of empirical research
on the impact of remittances on inflation in Asian and the Pacific developing countries. This study applied such
econometrics methods as Ordinary Least Squares (OLS), Two-Stage Least Squares (2-SLS), Panel
Generalized Method of Moments (PGMM) and panel Granger causality to investigate this impact. Annual data for
the period 1985 2013 of 32 developing countries in Asian and the Pacific is used in this study. The results found
that remittance inflows significantly increase inflation during the research period and there exists a one-way
Granger causality from remittances to inflation.
Keywords: Asian and the Pacific developing countries, Inflation, Remittance inflows, Granger causality
JEL Classification: C33, E31, F22
1. Introduction
Since the 1980s, remittances have been rapidly increasing in quantity in the developing world. Remittances
are actually considered as an important capital source for fostering economic growth and reducing poverty in the
developing countries. There have been many empirical researches on the effect of remittances on the
macroeconomic issues in the recipient countries. In particular, some studies showed that remittances have positive
contribution to economic development such as economic growth promotion (Giuliano and Ruiz-Arranz, 2009; Rao
& Hassan, 2011; Nyamongo et al., 2012), financial sector expansion (Chowdhury, 2011; Aggarwal et al., 2011;
Cooray, 2012; Beine et al., 2012), economy’s competitiveness enhancement (Bayangos & Jansen, 2011), poverty
alleviation (Acosta et al., 2008; Gupta et al., 2009; Imai et al., 2014), and improvement of household expenditures
(Combes & Ebeke, 2011).
However, there are few studies on negative impact of remittances on the economy of recipient countries.
For instance, some studies found the effect of remittances on social inequality (Acosta et al., 2008) or corruption
(Berdiev et al., 2013). There seems to exist a research gap on the relationship between remittance inflows and
inflation for the case of the recipient countries in Asian and the Pacific or other continents. Consequently, the
question of whether the relationship between remittance inflows and inflation is positive or negative or even
insignificant remains unfastened.
In the recent years, Asian and the Pacific has emerged as a region with the most rapid growth of
remittances in the world. According to data from World Bank, Asian and the Pacific’s remittance inflows accounted
for about 47% of the total amount of remittances worldwide. Within two decades, the remittances in Asian and the
Pacific have increased 14 times, from $14.2 billion in 1990 up to $198.2 billion in 2010, and currently have a strong
upward trend. In 2012, there are 20 Asian and the Pacific countries with the ratio of remittances to GDP greater
2
than 1%. It is noteworthy that the amount of remittances is higher Official Development Aid (ODA) and becomes
the second capital inflow after foreign direct investment (FDI) with respect to the flows of foreign capital into Asian
and the Pacific (Fig.1). However, in Asian and the Pacific region, remittances are mainly transferred into the
developing countries. Specifically, the value of remittances into these countries accounted for 90% (in 2000) and
97% (in 2012) of the total amount of remittances into Asian and the Pacific countries.
Source: World Bank (World Development Indicators)
Figure 1 - Remittances and other resource inflows in Asian and the Pacific.
Therefore, how will inflation be affected by the remittances flow for the case of developing countries in
Asian and the Pacific region? However, no matter how the impact of remittances is, this impact needs to be
investigated as a basis for policies adjustments to stabilize inflation and maintain sustainable economic growth.
Consequently, this study was conducted to with the objective of examining the relationship between
remittances and inflation in recipient countries with the using data from 32 developing countries in Asian and the
Pacific. The research results may supplement in theoretical framework about the impact of remittances on the
whole economy in general and the relationship between this foreign currency flow and inflation in developing
countries in particular.
Next section presents the literature review by summarizing the empirical researches. Section III introduces
the econometric model and describes research data. Section IV presents the regression estimations. Section V
discusses the results of panel Granger causality. Finally, Section VI concludes remarkable findings.
2. Literature review and empirical researches
In fact, the remittance is one of the major foreign currency inflows that not only has the positive impacts on
the economy but also causes macroeconomic instability, including the risk of inflation. However, in the world as
well as in Asian and the Pacific region, there are few researches on the relationship between remittances and
inflation, and the research results are inconsistent.
Narayan et al. (2011) examined the determinants of inflation using a sample of 54 developing countries in
the world. Their result showed that remittances lead to an increase in inflation and the effect becomes more
obvious in long term. However, this research is conducted using statistical data for period of ten years from 1995 -
2004 and does not pay attention to particular feathers of remittances in the Asian and the Pacific developing
countries. In addition, this study has not deeply analyzed the causal effect between remittances and inflation during
the research period.
Continuously, Ball et al. (2012) applied a theoretical model and panel vector auto regression (PVAR)
technique using a panel data for the case of 21 emerging countries in the world in the 1980-2010 period. Their
0
100
200
300
400
500
600
700
1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013
USD Billion
FDI Remittance flows ODA
3
research result found that remittances have increasing effect on inflation with a fixed exchange rate regime but
decreasing impact on inflation under a flexible exchange rate regime. Termos et al. (2013) employed the panel
regression methods (OLS and AndersonHsiao estimations) to prove the effect of remittance outflows on inflation
in 6 countries in the Gulf Cooperation Council (GCC) region over the period of 1972-2010. The result pointed out
that the growth of remittance outflows decrease inflation rate in GCC countries.
In addition, Khan and Islam (2013) used VAR techniques to investigate the case of Bangladesh from 1970
to 2010. Research result proved that every 1% increase in the remittance inflows simultaneously increases the
inflation rate at 2.48% in long term. However, their research found no short-term relationship between remittances
and inflation in Bangladesh in this period. Also for Bangladesh’s economy, Roy and Rahman (2014) applied VECM
model to study the relationship between remittances and inflation in general as well as remittances and food
inflation in particular. The results showed that the remittances increase both general inflation and food inflation.
Furthermore, remittances was found to increase food inflation by 2.5 times compared with general inflation. More
recently, Iqbal et al. (2013) investigated the nexus between remittances and inflation in Pakistan over the period
1980-2012. The finding evidenced that remittances have significantly positive impact on inflation. So this result
recommends that the Pakistan’s government should formulate policies to channel the remittances for
productive investments (i.e. though investment in infrastructure) rather than for consumption by diverse means.
3. Methodology and data description
3.1. The econometric model
Based on the previous researches, we apply an economics model on inflation function to investigate the
impact of remittance inflows on inflation for the case of Asian and the Pacific developing countries. The model is
written as follows:
ti,ti,3ti,21ti,1iti, εXαREMαINFαδINF
(3.1)
i = 1,2,3…, N; t = 1,2,3…, T
Where, INFi,t denotes inflation which is defined by GDP deflator; INFi,t-1 is the lag of inflation and REM is
remittance inflows over GDP. Moreover, X denotes the matrix of variables such as economic growth rate (GDPG);
government expenditure over GDP (GE); investment (INV) which is calculated by gross capital formation over
GDP; the level of trade openness of the economy (OPENNESS); current account over GDP (CA). Finally, i,t is
error term.
For the regression equation (1), three estimation methods with panel data including Ordinary Least Squares
(OLS), Two-Stage Least Squares (2-SLS) and Panel Generalized Method of Moments (PGMM) are employed to
examine the relationship between remittance inflows and inflation in recipient countries. 2-SLS and PGMM
methods are applied with the aim of controlling for endogeneity in the research model and the results from OLS
method is employed for comparison.
3.2. Data description
The research used annual data from 1985 to 2013 in 32 Asian and the Pacific developing countries. The
data is extracted from the World Development Indicators database of World Bank.
Table 1 - Descriptive statistics of the variables.
Statistics
Mean
Median
Maximum
Std.dev
INF
7.88
6.75
280.1
6.42
REM
6.65
2.94
49.2
9.51
GDPG
6.45
6.34
34.5
5.15
GE
0.12
0.11
0.39
0.04
INV
28.3
26.5
69.2
10.0
CA
-0.23
-0.76
44.1
11.8
OPENNESS
1.01
0.83
4.50
0.74
Source: World Bank (World Development Indicators)
4. Empirical Results
In fact, remittance inflows are considered as foreign currencies; therefore, they may replace the domestic
currency in recipient countries in function of intermediate exchange or reserve. Therefore, higher amount of
4
remittances may increase the total intermediate exchange in the recipient countries. The growth of remittance
inflows may increase both domestic consumption and aggregate demand of the economy. The effect of
remittances on aggregate demand will continue to expand with multiplier effect. Moreover, an increase in
aggregate demand will raise the inflation rate, which is defined as the demand-pull inflation.
In addition, remittance inflows increase supply of foreign currency, and then exert pressure on decrease of
exchange rate. The decline in exchange rate will impact on trade balance negatively. Therefore, the central bank
needs to increase domestic money supply to buy foreign currency for raising the exchange rate. According to the
Quantity theory of money, the growth of domestic money supply leads to higher inflation. Therefore, it is expected
from this study that remittance inflows raise inflation in the developing countries in Asian and the Pacific region.
Table 2 - Estimation results
Statistics
OLS
2-SLS
PGMM
INF(-1)
0.2337***
(3.495)
0.2302***
(3.067)
0.8459***
(14.326)
GDPG
0.2943***
(3.430)
0.7843***
(3.456)
0.1916***
(2.890)
REM
0.1472***
(3.119)
0.1148*
(2.109)
0.3160***
(3.404)
GE
-10.303
(-1.100)
-10.188
(-0.972)
-31.928
(-1.245)
INV
-0.0283
(-0.598)
0.1157*
(1.758)
0.2061**
(2.140)
OPENNESS
-0.3182
(-0.554)
-0.1187
(-0.293)
10.695***
(3.885)
CA
-0.081*
(-1.805)
-0.1661***
(-2.727)
0.0877
(1.178)
Observations
R2
206
0.219
197
0.072
178
-
Notes: t-statistics are in parentheses;
* significant at 10%; ** significant at 5%; *** significant at 1%.
The regression results were conducted using three estimation methods, including OLS, 2-SLS and PGMM.
All regression coefficients representing the relationship among the variables are shown in Table 2. The main
finding is the impact of remittances on inflation. As expected, the analysis results from three estimation methods
show the positive relationship between remittance inflows and inflation and these impacts are statistically
significant (1% and 10% level). These results confirmed that remittance inflows lead to upward pressure on
inflation in the Asian and the Pacific developing countries.
According to the Impossible Trinity theory, the countries need to sacrifice an independent monetary policy
for free capital flows (including remittance inflows) and fixed exchange rate regime. Thereby, the growth of
remittance inflows leads to more complexity for monetary policy in stabilizing both exchange rate and inflation. This
finding provides a significant empirical evidence for these countries to control inflation in the context of upward
trend in remittance inflows.
The results also find that current inflation has a significantly positive relationship with inflation in the past,
which reflects inertial inflation. Moreover, investment is also proved to have a positive impact on inflation because
the growth of investment would increase the aggregate demand and then raise the demand-pull inflation.
The analysis results also find a significantly negative relationship between current account and inflation
because 19 countries in the research sample (about 60%) run deficit on the current account in the research period.
Moreover, current account deficit will reduce total intermediate exchange and decrease the pressure on inflation.
From the analysis results, it is also confirmed that the economic growth and openness have significantly positive
impact on inflation for the case of these countries. However, the results find no impact of government expenditure
on inflation in the research period.
5. Panel Granger causality test results
In this section, panel Granger causality test is applied to discover the existence of causal relationships
between some macroeconomics indicators and inflation in Asian and the Pacific developing countries. The
standard Granger causality test constructed by Granger (1969) is not suitable for panel data. Therefore, our paper
5
employs the panel Granger causality test method developed by Hurlin and Venet (2001) and Hansen and Rand
(2006). This method assumed that the autoregressive coefficients and the slope coefficients are constant in a
panel VAR model. Some studies have applied the technique developed by Hurlin and Venet (2001) to test for
Granger causality with panel data (Erdil and Yetkiner, 2009; Töngür and Elveren, 2014). On the basis of the
researches by Hurlin and Venet (2001) and the previous empirical studies, we consider a panel VAR model to
examine the causal effect of explanatory variables xi,t on dependent variable yi,t via estimating the following
equation:
 
 
q
1k
q
1k ti,kti,
k
ikti,
k
ti, vxγyηy
(5.1)
Where, t denotes periods, N are cross section units and i ϵ [1, N]. xi,t and yi,t are covariance stationary
variables. k and
k
i
γ
are assumed to be constant over time.
Four methods of panel unit root test are employed in this paper, including LLC (Levin et al., 2002), IPS (Im
et al., 2003), Breitung (Breitung, 2000) and Choi (Choi, 2001). The results of panel unit root tests indicate that
some variables in the equation (1) are non-stationary at level. However, the testing results show that all variables
are stationary at first difference at significant level of 1% (Table 3). Thenceforth, the panel VAR model with first-
difference variables is applied to test Granger causality in next step.
Table 3 - Results of panel unit root tests at level and first difference
Level
INF
GDPG
REM
GE
INV
OPENNESS
CA
LLC
-8.7387***
-7.3938***
1.1712
-1.6461*
-0.6275
0.7958
-4.5214***
IPS
-5.6499***
-10.072***
0.0088
-4.2250***
-1.3226*
-0.2374
-0.1377
Breitung
-5.8985***
-7.8966***
2.5355
-1.1846
-0.7239
-0.3184
-0.5100
Choi
-9.7081***
-8.8630***
0.0807
-4.0327***
-1.4162*
-0.2261
-1.3054*
First difference
INF
GDPG
REM
GE
INV
OPENNESS
CA
LLC
-136.049***
-15.7057***
-6.8652***
-10.7189***
-15.1049***
-10.9788***
-5.5452***
IPS
-12.0171***
-15.6564***
-3.3355***
-14.9599***
-14.6015***
-15.2580***
-5.5585***
Breitung
-12.1627***
-13.2315***
-10.0065***
-12.4848***
-12.4667***
-10.1188***
-4.8764***
Choi
-20.9270***
-30.7138***
-7.0693***
-18.0762***
-13.1845***
-14.0531***
-7.1106***
Notes: * significant at 10%; ** significant at 5%; *** significant at 1%.
On the basis of the technique developed by Hurlin and Venet (2001), we use two time stationary VAR
models to examine the Granger causality between inflation and the explanatory variables in the equation (1).
These VAR equations can be presented as follows:
 
 
q
1k
q
1k ti,kti,
k
ikti,
k
ti, vxγyηy
(5.2)
 
 
q
1k
q
1k ti,kti,
k
ikti,
k
ti, vyγxηx
(5.3)
The selection of the optimal lag length for panel VAR models relies on some criteria including Akaike
Information Criterion (AIC), Schwarz Criterion (SC), Hannan-Quinn Information Criterion (HQ), Final Prediction
Error (FPE) and Likelihood Ratio (LR). The results from panel Granger causality tests between inflation and all
explanatory variables are presented in Table 4.
The results from Table 4 indicate the existence of one-way Granger causality from remittance to inflation in
Asian and the Pacific developing countries. It shows that remittance inflows increase inflation and this effect is
statistically significant at 5% level.
Similarly, the results also find the existence of one-way causality from investment, trade openness and
current account to inflation at 1% level of significance. Finally, it is found that there exists two-ways Granger
causality between economic growth rate and inflation for the case of the Asian and the Pacific developing countries
at significant level of 1%.
6
Table 4 - Results of panel Granger causality tests
Rem and Inflation
Lag = 6
REM→ INF
INF → REM
16.17730**
9.803004
Economic growth rate and Inflation
Lag = 3
GDPG → INF
INF → GDPG
23.12958***
27.20191***
Government expenditure and Inflation
Lag = 1
GE → INF
INF GE
1.71526
0.857978
Investment and Inflation
Lag = 7
INV → INF
INF → INV
18.96116***
9.314643
Trade openness and Inflation
Lag = 2
OPENNESS → INF
INF → OPENNESS
49.74494***
1.055573
Current account and Inflation
Lag = 2
CA→ INF
INF → CA
8.493614**
0.576376
Notes: * significant at 10%; ** significant at 5%; *** significant at 1%.
6. Conclusion
Unlike the previous studies on the remittances-inflation nexus, a sample of 32 Asian and the Pacific
developing countries over the period 1985-2013 was applied in this study to examine this relationship. The results
found that higher remittance inflows raise inflation rate in these countries. In particular, results from three
estimation methods applied in this research showed that there is a positive relationship between remittances and
inflation. Furthermore, the Panel Granger causality test confirmed the existence of one-way causality from
remittances to inflation in the research period. The research results complement and contribute to literature on the
impact of remittances on the economy. The research findings also provide useful information about the impact
direction of remittances on inflation, and thenceforth the policymakers in these countries can enhance the
effectiveness of planning and operating monetary policy to stabilize inflation due to the upward trend in remittance
inflows in Asian and the Pacific region.
References
[1] Acosta, P.; Calderón, C.; Fajnzylber, P.; Lopez, H. (2008). What is the Impact of International Remittances on
Poverty and Inequality in Latin America?. World Development, 36(1): 89-114, DOI:
http://dx.doi.org/10.1016/j.worlddev.2007.02.016
[2] Aggarwal, R.; Kunt, A. D.; Pería, M. S. M. (2011). Do remittances promote financial development?. Journal of
Development Economics, 96(2): 255-264, DOI: http://dx.doi.org/10.1016/j.jdeveco.2010.10.005
[3] Bayangos, V.; Jansen, K. (2011). Remittances and Competitiveness: The Case of the Philippines. World
Development, 39(10): 1834-1846, DOI: http://dx.doi.org/10.1016/j.worlddev.2011.04.019
[4] Ball, C.; Lopez, C; Reyes, J., (2012). Remittances, Inflation and Exchange rate regimes in Small open
Economies. MPRA Paper No. 39852, University Library of Munich, Germany.
[5] Beine, M.; Lodigiani, E.; Vermeulen, R. (2012). Remittances and financial openness. Regional Science and
Urban Economics, 42(5): 844-857, DOI: http://dx.doi.org/10.1016/j.regsciurbeco.2011.12.005
[6] Breitung, J. (2000). The Local Power of Some Unit Root Tests for Panel Data. In: B. Baltagi (Ed). Advances in
Econometrics, Vol. 15: Nonstationary Panels, Panel Cointegration, and Dynamic Panels, JAI Press,
Amsterdam, pp. 161178.
[7] Berdiev, A. N.; Kim, Y.; Chang, C. P. (2013). Remittances and Corruption. Economic Letters, 118(1): 182-185,
DOI: http://dx.doi.org/10.1016/j.econlet.2012.10.008
[8] Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2): 249272,
7
DOI: http://dx.doi.org/10.1016/S0261-5606(00)00048-6
[9] Chowdhury, M. B. (2011). Remittances flow and financial development in Bangladesh. Economic Modelling,
28(6): 2600-2608, DOI: http://dx.doi.org/10.1016/j.econmod.2011.07.013
[10] Combes, J.; Ebeke, C. (2011). Remittances and Household Consumption Instability in Developing countries.
World Development, 39(7): 1076-1089, DOI: http://dx.doi.org/10.1016/j.worlddev.2010.10.006
[11] Cooray, A. (2012). Migrant remittances, financial sector development and the government ownership of banks:
Evidence from a group of non-OECD economies. Journal of International Financial, Markets Institutions &
Money, 22(4): 936-957, DOI: http://dx.doi.org/10.1016/j.intfin.2012.05.006
[12] Erdil, E.; Yetkiner, I. H. (2009). The Granger-causality between health care expenditure and output: a panel
data approach. Applied Economics, 41(4): 511518, DOI:
http://www.tandfonline.com/doi/abs/10.1080/0003684060101908
[13] Giuliano, P.; Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of
Development Economics, 90(1): 144-152, DOI: http://dx.doi.org/10.1016/j.jdeveco.2008.10.005
[14] Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross spectral methods.
Econometrica, 37(3): 424438, DOI: http://dx.doi.org/10.2307/1912791
[15] Gupta, S.; Pattillo, C. A.; Wagh, S. (2009). Effect of Remittances on Poverty and Financial Development in
Sub-Sahara Africa. World Development, 37(1): 104-115, DOI:
http://dx.doi.org/10.1016/j.worlddev.2008.05.007
[16] Hansen, H.; Rand, J. (2006). On the causal links between FDI and growth in developing countries. World
Economy, 29(1): 2141, DOI: http://dx.doi.org/10.1111/j.1467-9701.2006.00756.x
[17] Hurlin, C.; Venet, B., (2001). Granger causality tests in panel data models with fixed coefficients. Eurisco
Working Paper No. 200109. University of Paris- Dauphine.
[18] Im, K. S.; Perasan, M. H.; Shin, Y. (2003). Testing Unit Roots in Heterogeneous Panels. Journal of
Econometrics, 115: 53-74, DOI: http://dx.doi.org/10.1016/S0304-4076(03)00092-7
[19] Imai, K. S.; Gaiha, R.; Ali, A.; Kaicker, N. (2014). Remittances, growth and poverty: New evidence from Asian
countries. Journal of Policy Modeling, 36(3): 524-538, DOI: http://dx.doi.org/10.1016/j.jpolmod.2014.01.009
[20] Iqbal, J.; Nosheen, M.; Javed, A. (2013). The Nexus between Foreign Remittances and Inflation: Evidence
from Pakistan. Pakistan Journal of Social Sciences, 33(2): 331-342.
[21] Khan, Z. S.; Islam, S. (2013). The Effects of Remittances on Inflation: Evidence from Bangladesh. Journal of
Economics and Business Research, 19(2): 198-208.
[22] Levin, A.; Lin C. F.; Chu, C. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties.
The Review of Financial Studies, 108(1): 1-24, DOI: http://dx.doi.org/10.1016/S0304-4076(01)00098-7
[23] Narayan, P., Narayan, S. and Mishra, S. (2011). Do remittances induce inflation? Fresh evidence from
developing countries. Southern Economic Journal, 77(4): 914-933, DOI: http://dx.doi.org/10.4284/0038-
4038-77.4.914
[24] Nyamongo, E. M.; Misati, R. N.; Kipyegon, L.; Ndirangu, L. (2012). Remittances, financial development and
economic growth in Africa. Journal of Economic and Business, 64(3): 240-260, DOI:
http://dx.doi.org/10.1016/j.jeconbus.2012.01.001
[25] Rao, B.; Hassan, G. (2011). A panel data analysis of the growth effects of remittances. Economic Modelling,
28(1-2): 701-709, DOI: http://dx.doi.org/10.1016/j.econmod.2010.05.011
[26] Roy, R.; Radman, M. M., (2014). An empirical analysis of remittances inflation relationship in Bangladesh:
post-floating exchange rate scenario. MPRA Paper No. 55190, University Library of Munich, Germany.
[27] Termos, A.; Naufal, G.; Genc, I. (2013). Remittance outflows and inflation: The case of the GCC countries.
Economic Letters, 120(1): 45-47, DOI: http://dx.doi.org/10.1016/j.econlet.2013.03.037
[28] Töngür, Ü.; Elveren, A. Y. (2014). Deunionization and pay inequality in OECD Countries: A panel Granger
causality approach. Economic Modelling, 38: 417425, DOI: http://dx.doi.org/10.1016/j.econmod.2014.01.014
Appendix
8
Appendix 1 - List of countries used in research sample
Country
Armenia
Lao
Azerbaijan
Macao
Bangladesh
Malaysia
Bhutan
Maldives
Cambodia
Mongolia
China
Nepal
Fiji
Pakistan
Georgia
Papua New Guinea
Hong Kong
Philippines
India
Samoa
Indonesia
Solomon Islands
Iran
Sri Lanka
Kazakhstan
Tajikistan
Kiribati
Thailand
Korea, Rep.
Turkey
Kyrgyz Republic
Vietnam
... However, this research is conducted using statistical data for period of ten years from 1995 -2004 and does not pay attention to particular feathers of remittances in the Asian and the Pacific developing countries. In addition, this study has not deeply analyzed the causal effect between remittances and inflation during the research period (Tung & Pham, 2015). Ball, Ropez and Leys (2013) also found the increasing effect of remittance on inflation in GCC countries. ...
Article
Present paper aims at identifying the impact of remittance on inflation in Nepalese economy through econometric methodology such as Cointegration test, Vector Error Correction Models (VECM) and Granger Causality tests. Using annual data series from 1990/91 to 2018/19, the variables under study are found to be cointegrated as reported by Johansen’s cointegration test. The VECM also shows the short run and long run relationship between the variables. The Granger Causality test shows the uni-directional causality from remittance to inflation. Present paper focuses on the emphasis of using remittance on capital formation. The returned migrants are to be provided soft loans to establish domestic and small-scale industries. The returned migrants are to be encouraged to forced saving.
... Another research carried out showed that transfer of funds increases the availability of workforce that increases productivity, and the competitive level of the receiving country. However, one cannot overlook the fact that it increases the effectiveness of the bank system, which then helps in the development of domestic companies, it enhances accessibility to the financial section, raises inflation, changes the exchange rate (Bayangos & Jansen, 2011;Cooray, 2012;Giuliano & Ruiz-Arranz, 2009;Inoue & Hamori, 2016;Prakash & Mala, 2015;Rausser et al., 2018;Tung, 2018;Tung et al., 2015). ...
Article
Full-text available
Sustainable Development Goals (SDGs) are the most ambitious development frameworks to assist in driving inclusive development globally. This is particularly so relative to Africa. Several efforts have been made to achieve development in Africa but more efforts are needed to achieve desired results. Overseas Development Assistance (ODA) and Foreign Direct Investments (FDIs), which used to positively impact development on the continent, have been on the decline even as African governments continue to struggle with development efforts. Current poverty alleviation efforts and development financing strategies have focused on the role of remittances in achieving development on the continent given sustained and appreciable increase in remittances and their abilities to reach/impact households. More studies are, however, needed to sufficiently understand how remittances affect, and will continue to affect, development in Africa, particularly within the framework of SDGs. Remittances are very relevant to SDGs particularly in achieving goals 1–6, 7, 8, 10, 12, 13, and 17 in Africa. It is against this background that this article examines the possibilities and potentials of remittances in driving development and achieving SDGs in Africa.
... Conversely, remittances may influence the economy adversely. Remittances can exacerbate inflation through inducing increases in consumption (Narayan et al., 2011;Tung et al., 2015). Another risk associated with remittances is harming economic growth by taking out potential employees from the labor force due to the positive influence on household revenue. ...
Article
Full-text available
In this paper, we investigate the effect of remittances on energy consumption. To this aim, we analyzed MENA countries over the 1977–2014 period. We used Westerlund and Edgerton's (2007) cointegration test, the AMG estimator, and Dumitrescu and Hurlin's (2012) panel causality tests. The results of the cointegration test showed there is a long-term relationship between remittance inflow and energy consumption. According to the AMG estimator, remittance inflow has a positive impact on energy consumption, indicating that increases in remittances will be followed by increases in energy consumption. The panel causality test displayed a bidirectional causal linkage between remittance and energy consumption. On the basis of these findings, we can say that authorities should take account of remittance inflow in their energy consumption and environmental degradation policies.
... This would fuel a further increase in domestic prices and a real exchange rate appreciation. Using data from 1985 -2013, Tung et al. (2015) investigated 32 developing countries in the Asian and Pacific region and found that remittance inflows caused a significant increase in REER in these countries. ...
Article
Full-text available
The paper investigates the impact of remittance on real effective exchange rate in The Gambia. The Fully Modified OLS and Dynamic OLS are used on a monthly data from 2009M1 to 2019M12. FMOLS and DOLS estimations revealed that remittance has a positive significant impact on real effective exchange rate in The Gambia, implying that 1% increment in remittance leads to a real appreciation of the Gambian Dalasi (GMD) against the major currencies by 1.5%. Likewise, inflation is positively associated with REER, while the relationship amid foreign reserves and REER is inconclusive. Contrarily, money supply and monetary policy rate were found to have a depreciating impact on REER in both models. Keywords: Remittance, Real effective exchange rate, FMOLS, DOLS, The Gambia
... Positive relations between remittances and inflation were also found by Lopez et al. (2007) and . In the case of 32 Asian and Pacific developing countries covering the 1985-2013 study period, Tung et al. (2015) examined the effect of remittance inflows on inflation. The study discovered that remittance inflows dramatically increased inflation during the research period by applying the Ordinary Least Squares (OLS), Two-Stage Least Squares (2-SLS), Panel Generalized System of Moments (PGMM) methods. ...
Article
Full-text available
Remittance plays a critical role for small economies like Georgia as an unusual means of financing. In policy-making decisions, an understanding of the essence of the relationship between the amount of money exchanged and inflation is important. The paper studies the impact of remittance inflows, using quarterly data spanning a period (2000-2018), on the inflation rate in Georgia. The paper revealed that all independent variables have an effect on the long-run inflation rate; long-run inflation is positively associated with the leading explanatory variable remittance, and no relation is found in the short-run between remittance and inflation. The paper found that inflation's adjustment level to its equilibrium is 12% annually.
... Similarly, REM is statistically significant with positive sign; which revealed a positive association between remittances and inflation. The result of the current study is parallel with the findings of Tung et al. (2015). The overall impact of globalization factors are positive to inflation rate in the selected countries which means that globalization forces leads to increase inflation rate in developing countries of South Asia. ...
Article
Full-text available
The present study is about to elucidate the relationship between globalization and inflation in the South Asian Region. This study is carried out for period of 1081-2016 for four south Asian countries. Panel data techniques were put into investigation. Panel unit root tests reported that the variables are of I(0) and I(1). Hausman test revealed that Pooled Mean Group is suitable for estimation i.e. ARDL. Results showed that the globalization forces considerably and significantly determine inflation. In case of individual country it affected inflation a little different; it is highly significant in case of Bangladesh and Sri-Lanka and less effective for India and Pakistan. Bangladesh and SriLanka may get benefit from protectionist policy to control inflation. We can conclude that large countries are less affected i.e. India and Pakistan. Due to large size of the country external forces are inefficient to affect domestic structure considerably. A small country is expected to be affected more, therefore, it is recommended that small countries should adopt the policies of globalization more carefully.
... Remittance inflows negatively and significantly affect income inequality meaning this variable can help to reduce inequality in Asian and Latin-American developing countries. The impact of the Remittances variable in Asia is stronger than the Latin-American region, this evidence may be Asia is the most remittance inflows in the developing world (Tung et al., 2015;Tung, 2018b;Tung, 2018c). Besides, it can not be concluded in the case of the African region because the coefficient is not significant. ...
Article
Full-text available
Economic integration plays an important role in promoting economic growth. However, it can also increase inequality, although the relationship between economic integration and inequality is still unclear. Our paper aims to study the impact of economic integration on income inequality with a global sample regarding 59 developing countries collected from 1996-2016. Besides, we divide the overall sample into three smaller examples including developing countries in Asia, Africa, and Latin-America. Unlike previous studies, our research results confirm that economic integration has a multidimensional impact on inequality in countries. In detail, trade openness can help to reduce inequality, however, foreign direct investment increases inequality during the study period. The Kuznets' inverted-U curve among income and inequality is confirmed in the cases including the overall sample, Asia and Africa, excluding for the Latin-America. Finally, technology development and remittances are found to play a negative impact on inequality, while inflation leads to an increase in inequality level in developing countries. Keywords: economic integration, inequality, trade openness, FDI, Kuznets, developing country
Article
Full-text available
This study examined the impact of international remittances, on price stability in Nigeria from 1980 to 2019. The objective of the study is to examine the rate at which international remittances affect price stability in the country. The variables used in the study are consumer price index which serves as the dependent variable, and the independent variables are international remittance flow, trade openness, and exchange rate. The data were collected from CBN Statistical bulletin (2019) and World Bank development indicators (2019). These variables were used to capture objective one, two and three respectively However, due to the mixed order co integration in the unit root test; the study made use of Auto Regressive Distributed Lag (ARDL) Model. The findings showed that International remittance flow increase the general price level in the economy, in the long run. Trade openness reduces the general price level on the long run; while exchange rate also reduces the general price level on the long run. The study therefore concludes that international remittance affects price stability in Nigeria. It was recommended that, Remittances from abroad, bulk of the time aren't utilized for productive means, they are rather used to increase household consumption, thereby resulting to a slight increase in inflation and the price index in the economy, therefore policy makers should implement policies, that directs a large chunk of this inflow into the productive sector. The government should encourage economic integration and liberalization that will reduce the general rice level, hence minimizing the volatility of inflation in Nigeria. The exchange rate flows in the same line as international remittances as it forms a huge base of Nigeria's foreign exchange earnings. Thus this should be properly utilized to better grow the economy, and help achieve price stability.
Article
Full-text available
Bu çalışmanın amacı işçi transferleri ve enflasyon arasındaki ilişkiyi Türkiye için ortaya koymaktır. Bu amaçla 1987-2019 dönemi ele alınmış ve Johansen yaklaşımı, FMOLS yöntemi ve Hacker-Hatemi (2006) nedensellik testi kullanılmıştır. Johansen testi sonucuna göre, değişkenler arasında uzun dönem ilişki bulunmaktadır. FMOLS analizi bulguları ise, teoride beklenildiği gibi işçi transferlerinin enflasyonu artırdığını göstermektedir. Ayrıca, dış borçların enflasyon üzerinde pozitif etkiye sahip olduğu ancak dışa açıklık oranının istatistiksel olarak anlamlı olmadığı tespit edilmiştir. Hacker-Hatemi (2006) testi sonucu ise, işçi transferlerinden enflasyona doğru tek yönlü bir nedenselliğin varlığını göstermektedir.
Article
Full-text available
Purpose of the study: The current study estimated the impact of current account gaps (CAGAP) on inflation in South Asian countries, namely, Pakistan, Bangladesh, India, Nepal, and Sri Lanka. Methodology: CAGAP is estimated through macroeconomic fundamentals by applying panel time series data methodology from 1990 to 2018. We adopted the bias-corrected least square dummy variable (LSDVC) estimation technique for the time series macro and dynamic panel to find the impact of CAGAP on inflation. Principal findings: CAGAP negatively affected consumer price inflation rate while Lag of inflation, trade openness, age dependency, and oil prices positively affected inflation rate in the selected sample countries. In LSDVC, the Blundell and Bond (BB), Arellano-Bond (AB), Anderson and Hsiao (AH) estimates are determined while system and difference GMM estimates also confirmed the results. Therefore, LSDVC-AB is selected from the three versions of LSDVC as baseline regression based on higher significance and lower standard error. Applications of the Study: CAGAP affects inflation, so it should be estimated annually in all these countries for macroeconomic stability as IMF annually estimates for developed countries in an external sector report. It is worthwhile to estimate CAN regularly and watch it for CAB evaluation and future Adjustment. Based on the results, the study recommends that tailored policies and interventions focus on the structural distortions and slow-changing factors to eradicate CAGAP. Novelty/ Originality of the Study: A few empirical studies have scrutinized the role of CAB on macroeconomic variables. No empirical study on CAGAP and its consequences are available in the selected region's existing literature to the best of our knowledge.
Article
Full-text available
Like many developing countries remittances are relatively larger capital inflows in Bangladesh in recent years. Hence, understanding the impact of remittances on macroeconomic variables such as inflation is essential for policy makers of recipient economy. Incorporating remittances as an exogenous variable to the standard inflation function this paper verifies how it affects the inflation rate in Bangladesh using data over 1972-2010 period. Applying Vector Autoregressive (VAR) techniques the empirical results find that a one percent increase in remittances inflows increases inflation rate by 2.48 percent in the long run, whereas no significant relationship is evident between these two variables in the short-run in Bangladesh.
Article
Full-text available
The inflow of foreign remittances in Pakistan has been an important source of foreign exchange in Pakistan while economy of Pakistan being a consumption oriented society /economy makes it interesting to explore the nexus between foreign remittances and inflation in Pakistan. For this purpose, the present study attempts to examine the impact of foreign remittances on inflation in Pakistan covering a period (1980-2012). Stationary analysis of the model confirms that all the variables used in the model are integrated of order (I), therefore, the study applies Johansen Cointegration technique in order to check the long run behavior of inflation while to test the short run dynamics, the study uses Vector Error Correction Model (VECM). The empirical findings show that foreign remittances have significantly positive impact on inflation thus underlining the need to channelize foreign remittances into productive investment in order to boost up economic growth in order to counter the inflationary impact of remittances in Pakistan.
Article
Full-text available
The impact of unionization on wage inequality has been examined by a vast literature. Focusing mostly on the US and the UK in time series analyses or on OECD countries in panel data analyses, a bulk of these studies have found a negative impact of deunionization (i.e. decline in the union density rate) on distribution of wages. By utilizing two inequality data sets both provided by the University of Texas Inequality Project and the union density data set provided by OECD this paper contributes to the literature, analyzing the causality relationship between deunionization and pay inequality for 24 OECD countries for the 1963–2000 period within a panel Granger structure. Our findings show not only that there is causality from union density to income inequality but also, perhaps more importantly, point out that there is causality running from income inequality to union density for various set of countries and time periods.
Article
We examine the effect of remittance outflows on inflation in the remitting countries. The growth of remittance outflows depresses inflation rate.
Article
We examine the effect of remittances on corruption using panel data for 111 countries over the period of 1986–2010. We find that remittances increase corruption, especially in non-OECD countries.
This study investigates the influence of migrant remittances on two dimensions of the financial sector, namely, size and efficiency in a sample of 94 non-OECD economies. Evidence suggests that migrant remittances contribute to increasing the size and efficiency of the financial sector. The study, in addition, examines the impact of remittances on financial sector size and efficiency through their interaction with the government ownership of banks. The results suggest that remittances lead to larger increases in financial sector size in countries in which the government ownership of banks is lower, and increases in efficiency in countries in which the government ownership of banks is higher.
Article
Workers' remittance is a major source of foreign exchange earnings and plays an important role in the economy of Bangladesh. It accounts for 12% of GDP in 2010. This paper examines with annual data for 1971–2008, whether the flow of remittances is contributing positively to the development of the financial system of the country. Our results suggest that remittances have a significant positive effect on financial development. However, financial sector's development is neutral in its effect on the inflow of remittances.
Article
This study investigates the role of remittances and financial development on economic growth in a panel of 36 countries in Africa over the period 1980-2009. It uses a panel econometrics framework and the main findings of the study are as follows: (1) Remittances appear to be an important source of growth for these countries in Africa during the period under study. (2) Volatility of remittances appears to have a negative effect on the growth of countries in Africa. (3) Remittances appear to be working as a complement to financial development. (4) However, importance of financial development in boosting economic growth appears weak, at least among the countries under study.