Remittances Inflows and Trade Policy

Authors

  • Sena Kimm Gnangnon World Trade Organization

DOI:

https://doi.org/10.33182/rr.v4i2.812

Keywords:

remittances, editorial, money transfers, Bangladesh, developed countries, Nigeria

Abstract

This article explores the trade policy effect of remittances inflows, notably through three main channels, including trade imbalances, financial development and economic growth. The analysis uses a sample of 135 countries over the period 1996-2016. The findings suggest that remittances inflows induce trade policy liberalization, and the magnitude of this positive effect on trade policy liberalization is higher for less advanced countries, including poor countries than for relatively advanced countries. Furthermore, results suggest that the effect of remittances inflows on trade policy depends on countries' levels of trade imbalances, their financial development depth and their economic growth rate.

References

Acosta, P., Lartey, E., and Mandelman, F. (2009). Remittances and the Dutch disease. Journal of International Economics, 79, 102-116.

https://doi.org/10.1016/j.jinteco.2009.06.007

Ades, A. and Di Tella, R. (1999). Rents, Competition and Corruption. American Economic Review, 89(4), 982-993

https://doi.org/10.1257/aer.89.4.982

Aggarwal et al. (2011) have provided empirical evidence that remittances enhance financial development.

Aggarwal, R., Demirgüç-Kunt, A., and Pería, M. S. M. (2011). Do remittances promote financial development? Journal of Development Economics, 96, 255-264.

https://doi.org/10.1016/j.jdeveco.2010.10.005

Amuedo-Dorantes, C., and Pozo, S. (2004). Workers' remittances and the real exchange rate: A paradox of gifts. World Development, 32(8), 1407-1417.

https://doi.org/10.1016/j.worlddev.2004.02.004

Amuedo-Dorantes, C., Pozo, S. (2006). Migration, remittances and male and female employment patterns. American Economic Review, 96, 222-226.

https://doi.org/10.1257/000282806777211946

Ancharaz, V. D. (2003). Determinants of Trade Policy Reform in Sub-Saharan Africa. Journal of African Economies, 12(3), 417-443.

https://doi.org/10.1093/jae/12.3.417

Arellano, M., and Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51.

https://doi.org/10.1016/0304-4076(94)01642-D

Barajas, A., Chami, R., Fullenkamp, C., Gapen, M. T., and Montiel, P. (2009). Do workers' remittances promote economic growth? IMF Working Paper 153, International Monetary Fund, Washington, D.C.

Barattieri, A. (2014). Comparative advantage, service trade, and global imbalances. Journal of International Economics, 92(1), 1-13.

https://doi.org/10.1016/j.jinteco.2013.11.004

Batuo, E. M., and Asongu, S.A. (2015). The impact of liberalisation policies on income inequality in African countries. Journal of Economic Studies, 42(1), 68-100.

https://doi.org/10.1108/JES-05-2013-0065

Bayangos, V., and Jansen, K. (2011). Remittances and Competitiveness: The Case of the Philippines. World Development, 39(10), 1834-1846.

https://doi.org/10.1016/j.worlddev.2011.04.019

Beck, T. (2002). Financial development and international trade: Is there a link? Journal of International Economics, 57(1), 107-131.

https://doi.org/10.1016/S0022-1996(01)00131-3

Bergh, A., and Nilsson, T. (2010). Do liberalization and globalization increase income inequality? European Journal of Political Economy 26, 488-505.

https://doi.org/10.1016/j.ejpoleco.2010.03.002

Bettin, G., and Zazzaro, A. (2012). Remittances and financial development: Substitutes or complements in economic growth? Bulletin of Economic Research, 64, 509-536.

https://doi.org/10.1111/j.1467-8586.2011.00398.x

Bhattacharya, M., Inekwe, J., and Paramati, S.R. (2018). Remittances and financial development: empirical evidence from heterogeneous panel of countries. Applied Economics, 50(38), 4099-4112.

https://doi.org/10.1080/00036846.2018.1441513

Bhattacharyya, S. (2012). Trade liberalization and institutional development. Journal of Policy Modeling, 34(2), 253-269.

https://doi.org/10.1016/j.jpolmod.2011.08.005

Blundell, R., and Bond, S. (1998). Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87, 115-143.

https://doi.org/10.1016/S0304-4076(98)00009-8

Borgatti, L. (2007). Timing and sequencing of trade liberalization in the least-developed countries: Does foreign aid play a role? Economia Internazionale LX (1): 33-56.

Bourdet, Y., and Falck, H. (2006). Emigrants' remittances and Dutch disease in cape verde. International Economic Journal, 20(3), 267-284.

https://doi.org/10.1080/10168730600879323

Brown, R.P.C., Carmignani, F. and Fayad, G. (2013). Migrants' Remittances and Financial Development: Macro-and Micro-Level Evidence of a Perverse Relationship." The World Economy 36, 636-660.

https://doi.org/10.1111/twec.12016

Cáceres, L.R., and Saca, N.N. (2006). What Do Remittances Do? Analyzing the Private Remittance Transmission Mechanism in El Salvador. IMF Working Paper WP/06/250, International Monetary Fund, Washington, D.C.

https://doi.org/10.5089/9781451865103.001

Catrinescu, N., Leon-Ledesma, M., Piracha, M., and Quillin, B. (2009). Remittances, institutions, and economic growth. World Development, 37(1), 81-92.

https://doi.org/10.1016/j.worlddev.2008.02.004

Chami, R., Fullenkamp, C., and Jahjah, S. (2005). Are immigrant remittance flows a source of capital for development? IMF Staff Papers, 52, 55-81.

Chami, R., Cosimano, T., and Gapen, M. (2006). Beware of Emigrants Bearing Gifts: Optimal Fiscal and Monetary Policy in the Presence of Remittances, IMF Working Paper WP/06/61, International Monetary Fund, Washington D.C.

https://doi.org/10.5089/9781451863215.001

Chaney, T. (2005). Liquidity constrained exporters, University of Chicago Mimeo.

Chowdhury, M.B. and Rabbi, F. (2014). Workers' remittances and Dutch Disease in Bangladesh. The Journal of International Trade & Economic Development, 23(4), 455-475.

https://doi.org/10.1080/09638199.2012.738240

Demirgüc-Kunt, A., Cördova, E.L., Peria, M.S.M., and Woodruff, C. (2011). Remittances and banking sector breadth and depth: Evidence from Mexico. Journal of Development Economics, 95(2), 229-41.

https://doi.org/10.1016/j.jdeveco.2010.04.002

Drabek, Z., and Laird, S. (2001). Can trade policy help mobilize financial resources for economic development? (WTO Staff Working Paper No. ERAD-2001-02). Geneva, Switzerland: World Trade Organization.

Driscoll, J. C., and Kraay, A.C. (1998). Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data. Review of Economics and Statistics, 80 (4), 549-560.

https://doi.org/10.1162/003465398557825

Easterly, W. and Rebelo, S. (1993). Fiscal Policy and Economic Growth. Journal of Monetary Economics, 32(3):417-458.

https://doi.org/10.1016/0304-3932(93)90025-B

El Hamma, I. (2017). Do political institutions improve the effect of remittances on economic growth? Evidence South‑Mediterranean countries. Economics Bulletin, 37(3), 2133-2148.

European Union (2014). The impacts of remittances on developing countries. Directorate-General for External Policies of the European Union, EXPO/B/DEVE/2013/34, European Union, Belgium.

Falvey, R., Foster, N., and Greenaway, D. (2012). Trade Liberalization, Economic Crises, and Growth. World Development, 40(11), 2177-2193.

https://doi.org/10.1016/j.worlddev.2012.03.020

Flaig, D., Haugh, D., Kowalski, P., Rouzet, D., and van Tongeren, F. (2018). Miracle or Mirage: What role can trade policies play in tackling global trade imbalances? OECD Economics Department Working Papers No. 1473, OECD Publishing, Paris.

Freund, C., and Spatafora, N. (2008). Remittances, transaction costs, and informality. Journal of Development Economics, 86(2), 356-66.

https://doi.org/10.1016/j.jdeveco.2007.09.002

Fromentin, V., and Leon, F. (2019). Remittances and credit in developed and developing countries: A dynamic panel analysis. Research in International Business and Finance, 48, 310-320.

https://doi.org/10.1016/j.ribaf.2018.12.010

Fukumoto, Y and Kinugasa, T. (2016). Age Structure and Trade Openness: An Empirical Investigation. The World Economy, 40(6), 1247-1263.

https://doi.org/10.1111/twec.12464

Funkhouser, E. (1992). Migration from Nicaragua: some recent evidence. World Development, 20(8), 1209-1218.

https://doi.org/10.1016/0305-750X(92)90011-J

Giuliano, P., and Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of Development Economics, 90, 144-152.

https://doi.org/10.1016/j.jdeveco.2008.10.005

Gnangnon, S.K. (2018a). Impact of trade imbalances on domestic trade policy: Does multilateral trade policy matter?. Review of Development Economics, 22(4), e266-e289.

https://doi.org/10.1111/rode.12527

Gnangnon, S.K. (2018b). Trade space and trade policy: an empirical assessment. Journal of Economic Studies, 45(3), 498-520.

https://doi.org/10.1108/JES-02-2017-0033

Gnangnon, S.K. (2018c). Is the Impact of Trade Policy on Developing and Developed Countries' Export Performance Sustainable? Economic Issues, 23(2), 57-83.

Gubert, F. (2002). Do Migrants Insure Those who Stay Behind? Evidence from the Kayes Area (Western Mali). Oxford Development Studies, 30(3), 267-287.

https://doi.org/10.1080/1360081022000012699

Guillemette, Y., and Turner, D. (2013). Policy Options to Durably Resolve Euro Area Imbalances. OECD Economics Department Working Papers, No. 1035, OECD Publishing, Paris.

Gupta, S., Pattillo, C. A., and Wagh. S. (2009). Effect of Remittances on Poverty and Financial Development in Sub-Saharan Africa. World Development, 37 (1), 104-115.

https://doi.org/10.1016/j.worlddev.2008.05.007

Hanson, G. (2007). Emigration, remittances, and labor force participation in Mexico. Integration and Trade Journal, 27, 73-103.

Hassan, G.M. and Holmes, M.J. (2013). Remittances and the real effective exchange rate. Applied Economics, 45(35), 4959-4970.

https://doi.org/10.1080/00036846.2013.808311

Huchet‐Bourdon, M., Le Mouël, C., and Vijil, M. (2018). The relationship between trade openness and economic growth: Some new insights on the openness measurement issue. The World Economy, 41(1), 1-356.

https://doi.org/10.1111/twec.12586

Iliescu, N. (2019). Are imports and remittances cointegrated for the Central and Eastern European countries? Applied Economics Letters, 26(5), 387-395.

https://doi.org/10.1080/13504851.2018.1486006

Jansen, M. and Nordås, H. K. (2004). Institutions, trade policy and trade flows, WTO Staff Working Paper ERSD-2004-02, World Trade Organization, Geneva.

https://doi.org/10.2139/ssrn.923544

Joy, M., Lisack, N., Lloyd S., Reinhardt, D., Sajedi, R. and Whitaker, S. (2018) Mind the (current

account) gap. Bank of England Financial Stability Paper No. 43, United Kingdom.

Ju, J., Wu, Yi, and Zeng, Li. (2010). The Impact of Trade Liberalization on the Trade Balance in Developing Countries. IMF Staff Papers, 57(2), 427-449.

https://doi.org/10.1057/imfsp.2009.19

Kaufmann, D, Kraay, A. and M. Mastruzzi. (2010). The Worldwide Governance Indicators Methodology and Analytical Issues. World Bank Policy Research N° 5430 (WPS5430), Washington, D.C.

Kerdrain, C., Koske, I., and Wanner, I. (2010). The Impact of Structural Policies on Saving, Investment and Current Accounts. OECD Economics Department Working Papers, No. 815, OECD Publishing, Paris.

Kim, D-H., Lin, S-C., and Suen, Y-B. (2010). Are Financial Development and Trade Openness Complements or Substitutes? Southern Economic Journal, 6(3), 827-845.

https://doi.org/10.4284/sej.2010.76.3.827

Kim, D-H., Lin, S-C., and Suen, Y-B. (2010). Are Financial Development and Trade Openness Complements or Substitutes? Southern Economic Journal, 6(3), 827-845.

https://doi.org/10.4284/sej.2010.76.3.827

Kletzer, K. and Bardhan, P. (1987). Credit markets and patterns of international Trade. Journal of Development Economics 27, 57-70.

https://doi.org/10.1016/0304-3878(87)90006-X

Kneller, R., Morgan, C. W., and Kanchanahatakij, S. (2008). Trade Liberalisation and Economic Growth. 31(6), 701-719.

https://doi.org/10.1111/j.1467-9701.2008.01101.x

Kowalski, P. and Lesher, M. (2011). Global Imbalances: Trade Effects and Policy Challenges. OECD Trade Policy Papers, No. 120, OECD Publishing, Paris.

Kumar, R.R. (2013). Remittances and Economic Growth: A Study of Guyana." Economic Systems 37, 462-472.

https://doi.org/10.1016/j.ecosys.2013.01.001

Lartey E. K., Federico, Mandelman, S., and Acosta, P.A. (2008). Remittances, Exchange Rate Regimes, and the Dutch disease: A Panel Data Analysis. Atlanta: Federal Reserve Bank of Atlanta, Working Paper 2008-12.

https://doi.org/10.2139/ssrn.1109206

Lartey, E.K. Mandelman, F.S. and Acosta, P.A., 2012. Remittances, exchange rate regimes and the Dutch disease: a panel data analysis. Review of International Economics, 20(2), 377-395.

https://doi.org/10.1111/j.1467-9396.2012.01028.x

Loser, C., Lockwood, C. Minson, A., and Balcazar, L. (2006). The macroeconomic impact of remittances in Latin-America-Dutch disease or Latin cure?. Inter-American Dialogue.

Manova, K. (2005). Credit Constraints in Trade: Financial Development and Export Composition", Harvard University mimeo.

Miller, T., Kim, A. B., Roberts, J.M., and Tyrrell, P. (2019). 2019 Index of Economic Freedom, Institute for Economic Freedom, The Heritage Foundation, Washington, DC. See online: https://www.heritage.org/index/pdf/2019/book/index_2019.pdf

Milner, H. V., and Kubota K. (2005). Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries. International Organization, 59(1): 107-143.

https://doi.org/10.1017/S002081830505006X

Muktadir-Al-Mukit, D., Shafiullah, A. Z. M., and Sajib, A. H. (2013). Determination of Causality between Remittances and Import: Evidence from Bangladesh. International Journal of Business and Social Research 3, 55-62.

Mundaca, B. G. (2009). Remittances, financial market development, and economic growth: The case of Latin America and the Caribbean. Review of Development Economics, 13, 288-303.

https://doi.org/10.1111/j.1467-9361.2008.00487.x

Narayan, P. K., Narayan, S., and Mishra, S. (2011). Do remittances induce inflation? Fresh evidence from developing countries. Southern Economic Journal, 77(4), 914-933.

https://doi.org/10.4284/0038-4038-77.4.914

Nickell, S. (1981). Biases in Dynamic Models with Fixed Effects. Econometrica, 49(6), 1417-1426.

https://doi.org/10.2307/1911408

Nyamongo, E. M., Misati, R. N., Kipyegon, L., and Ndirangu, L. (2012). Remittances, financial development and economic growth in Africa. Journal of Economics and Business, 64, 240-260.

https://doi.org/10.1016/j.jeconbus.2012.01.001

Olugbenga, A. O. and Owoye, O. (1998). Can Trade Liberalization Stimulate Economic Growth in Africa? World Development, 26(3), 497-506.

https://doi.org/10.1016/S0305-750X(97)10058-4

Pradhana, G., Upadhyay, M., and Upadhyaya, K. (2008). Remittances and economic growth in developing countries. The European Journal of Development Research, 20(3), 497-506.

https://doi.org/10.1080/09578810802246285

Raheem, A. R., Vishnu, P., and Nawaz, A. (2014). Causal Relationship between Worker's Remittances and Imports in Pakistan. European Journal of Scientific Research 119 (3), 327-336.

Rajan, R., and Zingales, L. (1998). Financial dependence and growth. American Economic Review, 88(3), 559-586.

Rao, B. B., and Hassan, G. M. (2011). A panel data analysis of the growth effects of remittances. Economic Modelling, 28, 701-709.

https://doi.org/10.1016/j.econmod.2010.05.011

Rao, B. B., and Hassan, G. M. (2012). Are the direct and indirect growth effects of remittances significant? The World Economy, 35, 351-372.

https://doi.org/10.1111/j.1467-9701.2011.01399.x

Rapoport, H., and Docquier, F. (2006). The Economics of Migrants' Remittances. Vol. 1 of Handbook on the Economics of Giving, Reciprocity and Altruism. Elsevier. Ch. 17.

https://doi.org/10.1016/S1574-0714(06)02017-3

Rodrik, D. (1995). Political Economy of Trade Policy. In Handbook of International Economics, edited byGene Grossman and Kenneth Rogoff, 1457-94, Amsterdam, Netherlands: Elsevier Science Press.

https://doi.org/10.1016/S1573-4404(05)80008-5

Rose, A.K. (2013). The march of an economic idea? Protectionism isn't counter-cyclic (anymore). Economic Policy, 28(76), 569-612.

https://doi.org/10.1111/1468-0327.12017

Santos‐Paulino, A.U. (2004). Trade Liberalization and the Balance of Payments in Selected Developing Countries. The Manchester School, 72(1), 100-118.

https://doi.org/10.1111/j.1467-9957.2004.00382.x

Senbeta, A. (2013). Remittances and the sources of growth. Applied Economics Letters, 20, 572-580.

https://doi.org/10.1080/13504851.2012.718057

Sobiech, I. (2019). Remittances, finance and growth: Does financial development foster the impact of remittances on economic growth? World Development, 113, 44-59.

https://doi.org/10.1016/j.worlddev.2018.08.016

Svaleryd, H. and Vlachos J. (2002). Markets for Risk and Openness to Trade: How are they Related? Journal of International Economics, 57(2), 369-395.

https://doi.org/10.1016/S0022-1996(01)00153-2

Treisman, D. (2000). The Causes of Corruption: A Cross National Study. Journal of Public Economics, 76: 399-457.

https://doi.org/10.1016/S0047-2727(99)00092-4

Tuanò-Amador, Ma. N. Cyd, Claveria, Racquel A., Co, Ferdinand S., and Delloro, Vic K. (2007). Philippine overseas workers and migrants remittances: The Dutch disease question and the cyclicality issue. Bangko Sentral Review, XI(1), 1-23.

Vacaflores, D. E. (2012). Remittances, monetary policy and partial sterilization. Southern Economic Journal, 79(2), 367-387.

https://doi.org/10.4284/0038-4038-2011.147

Vargas-Silva, C. (2009). The tale of three amigos: Remittances, exchange rates, and money demand in Mexico. Review of Development Economics, 13(1), 1-14.

https://doi.org/10.1111/j.1467-9361.2008.00468.x

Wahba, J. (1998). The transmission of Dutch disease and labour migration. The Journal of International Trade & Economic Development, 7(3), 355-365.

https://doi.org/10.1080/09638199800000019

World Bank. (2006). The development impact of workers remittances in Latin America. Vol. 2: Detailed findings. Washington, D.C., Ch. 3. Remittances and Poverty Reduction, pp. 62-89, report No. 37026.

Wu, J., Li, S., and Samsell, D. (2012). Why some countries trade more, some trade less, some trade almost nothing: The Effect of governance environment on trade flows. International Business Review, 21, 225-238.

https://doi.org/10.1016/j.ibusrev.2011.02.007

Yongding, Y. (2012). Rebalancing the Chinese economy. Oxford Review of Economic Policy, 28(3), 551-568.

https://doi.org/10.1093/oxrep/grs025

Ziesemer, T. H. W. (2012). Worker remittances, migration, accumulation and growth in poor developing countries: Survey and analysis of direct and indirect effects. Economic Modelling, 29(2), 103-118.

https://doi.org/10.1016/j.econmod.2011.08.013

Published

2019-10-24

How to Cite

Gnangnon, S. K. (2019). Remittances Inflows and Trade Policy. Remittances Review, 4(2), 117-142. https://doi.org/10.33182/rr.v4i2.812

Issue

Section

Articles