Do Workers' Remittances Reduce the Probability of Current Account Reversals?

The authors combine the literature on financial crises in emerging markets and developing economies with that on international migrations by investigating whether the increasingly large flows of workers' remittances can help reduce the probability of current account reversals. The rationale for this stands in the great stability and low cyclicality of remittances as compared with other private capital flows: these properties, combined with the fact that remittances are cheap inflows of foreign currencies, might reduce the probability that foreign investors suddenly flee out of emerging markets and developing economies and trigger a dramatic current account adjustment. The authors find that remittances can have such a beneficial effect. In particular, they show that a high level of remittances, as a ratio of GDP, makes the relationship between a decreasing stock of international reserves (over GDP) and a higher probability of current account crises less stringent. The same occurs, though less neatly, for the positive relationship between an increasing stock of external debt (over GDP) and the probability of current account reversals. The results point also to a threshold effect of remittances: the mechanisms just described are, in fact, much stronger when remittances are above 3 percent of GDP.

Bibliographic Details

Main Authors:	Bugamelli, Matteo, Paternò, Francesco
Language:	English
Published:	World Bank, Washington, DC 2005-11
Subjects:	ABSOLUTE VALUE, ADVANCED COUNTRIES, BALANCE OF PAYMENTS, CAPITAL FLOWS, CAPITAL INFLOWS, CAPITAL MOVEMENTS, COMPETITIVENESS, CONSUMPTION SMOOTHING, COUNTRY GROWTH REGRESSIONS, COUNTRY OF ORIGIN, COUNTRY VARIANCE, CURRENCY CRISES, CURRENT ACCOUNT, CURRENT ACCOUNT ADJUSTMENTS, CURRENT ACCOUNT BALANCE, CURRENT ACCOUNT DEFICIT, CURRENT ACCOUNT DEFICITS, CURRENT ACCOUNT REVERSALS, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DOMESTIC CREDIT, ECONOMETRIC ANALYSIS, ECONOMIC GROWTH, ECONOMIC OUTLOOK, ECONOMIC RESEARCH, EMERGING COUNTRIES, EMERGING MARKETS, EMPIRICAL STUDIES, EXCHANGE ARRANGEMENTS, EXCHANGE RATE ARRANGEMENTS, EXCHANGE RATES, EXCHANGE RESTRICTIONS, EXPORTS, EXTERNAL DEBT, EXTERNAL DEBT SERVICE, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL INSTABILITY, FINANCIAL MARKETS, FINANCIAL OPENNESS, FINANCIAL STABILITY, FOREIGN CAPITAL, FOREIGN CURRENCIES, FOREIGN CURRENCY, FOREIGN DEBT, FOREIGN DIRECT INVESTMENT, FOREIGN EXCHANGE, FOREIGN INVESTORS, GDP, GDP PER CAPITA, GROWTH RATE, HIGH REAL INTEREST RATES, INTEREST RATES, INTERNATIONAL RESERVES, MACROECONOMIC INSTABILITY, MACROECONOMIC STABILITY, MEDIAN VALUE, MIDDLE-INCOME COUNTRIES, NATIONAL AUTHORITIES, OUTPUT VOLATILITY, POLICY RESEARCH, POSITIVE EFFECTS, PRIVATE CREDIT, PUBLIC DEBT, REAL EXCHANGE, REAL EXCHANGE RATE, REAL INTEREST, REAL INTEREST RATE, REAL INTEREST RATES, SHORT TERM DEBT, SOVEREIGN DEBT, STANDARD DEVIATION, STATISTICAL DATA, TERMS OF TRADE, TIME SERIES, TOTAL EXTERNAL DEBT, TOTAL OUTPUT, TRADE OPENNESS,
Online Access:	http://documents.worldbank.org/curated/en/2005/11/6399379/workers-remittances-reduce-probability-current-account-reversals https://hdl.handle.net/10986/8495
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