This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Workers' remittances are often argued to have a tendency to move countercyclically with the GDP in recipient countries since migrant workers are expected to remit more during down cycles of economic activity back home. Yet, how much to remit is a complex decision involving other factors, and different variables driving remittance behavior are differently affected by the state of economic activity over the business cycle. This paper investigates the behavior of workers' remittances flows into 12 developing countries over their respective business cycles during 1976-2003 and finds that countercyclicality of receipts is not commonly observed across these countries.

Over the past decades, different Mediterranean countries have sent considerable numbers of workers to the EU area, generating sizable amounts of foreign exchange receipts through the remittances these guest workers have transferred back home. In some instances, however, the share of remittances in foreign exchange receipts has risen so high as to cause concern for policymakers, as they imply potentially serious effects on macroeconomic balances following sudden drops or jumps in remittances. Despite the importance of implications of the volatility of remittance receipts, the current literature severely lacks thorough investigations into the sources of this volatility. This paper aims to help fill this gap in the literature by documenting some key business cycle properties of workers' remittances received by the Turkish economy. More specifically, the paper investigates whether there is a relationship between the amount of remittances sent to Turkey by the large number of Turkish workers living and working in Germany, and up-and downswings that Turkish and German economies experience. For this purpose, regularities between fluctuations in the national outputs of respective economies and remittance flows to Turkey are analyzed by using time series data, and implications of results for the Turkish economy are discussed.

This paper investigates the implications of the addition of differential population dynamics to a simple 2 Â 2 Â 2 model of international trade within an overlapping generations framework. The two regions considered are assumed to be identical in every respect except for the way their populations evolve over time. The effects of these demographic differences are explored by comparing autarky and trade on the basis of (i) the analytical solutions obtained for the steady-state values of key variables and (ii) the paths of these variables plotted using numerical results from simulation experiments carried out under two different demographic scenarios. Unequal population dynamics are shown to affect the relative abundance of the factors of production in each region, giving rise to differentials in wage rates and rentals for capital under autarky conditions. This, in turn, causes costs of production and relative prices to differ, creating the grounds for trade in the sense of Heckscher-Ohlin (HO). Yet, the results reveal that static HO results cannot be generalized to hold in a dynamic setting where differences in demographics cause factor proportions to evolve independently of trade over time. r

This paper analyzes the implications of remittance fluctuations for various macroeconomic variables and Sudden Stops. The paper employs a quantitative two-sector model of a small open economy with financial frictions calibrated to Mexican and Turkish economies, two major recipients, whose remittance receipts feature opposite cyclical characteristics. We find that remittances dampen the business cycles in Mexico, whereas they amplify the cycles in Turkey. Their quantitative effects in the long run, approximated by the stochastic steady state are mild. In the short run, however, remittances have quantitatively large impacts on the economy, when the economy is borrowing constrained. This is because agents in the economy cannot adjust their precautionary wealth to sudden tightening in credit, hence, fluctuations in remittances get magnified through an endogenous debt-deflation mechanism. Our findings suggest that procyclical (or countercyclical) remittances can play a significant deepening (or mitigating) role for Sudden Stops.

International commodity and capital flows provide channels for the transmission of the effects of demographic changes in large countries onto small open economies by altering the prices and interest rates facing them. This implies that even small countries with relatively young populations are potentially vulnerable to the effects of population aging in large industrial economies. To address this issue, which has largely been overlooked in previous literature, this paper considers the case of European Union and Turkey and shows, within an overlapping generations general equilibrium framework, that spillovers of the demographic shock in Europe would intensify the changes that Turkey would experience during its own demographic transition.