Business Cycles and Workers' Remittances: How Do Migrant Workers Respond to Cyclical Movements of GDP At Home?

Abstract

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.

Spillovers to Central America in Light of the Crisis: What a Difference a Year Makes

“…These authors fail to find a strong impact in a growth regression framework, while Sayan (2006) finds that receipts are typically acyclical with respect to economic activity in the recipient country. The global recession and recovery may shed more light on both the role of source country conditions and the impact of remittances on the destination country, as prior to this episode the cyclical variation in the official data was obscured by the upward structural shift in the level of remittance flows.…”

“…If remittances are tied to employment and wage levels in the source country and boost expenditure in the recipient country, then they provide a direct positive link between economic activity abroad and in Central America. However, this positive relationship could in theory be offset by appreciation of the recipient country's real exchange rate, or a reduction in the domestic labor supply, and there is no consensus in the literature on the effect of remittance receipts on economic activity in the recipient country (Chami and others, 2008;Sayan, 2006;World Bank, 2005). Thus, the role of remittance flows as a transmission channel for the spillover of economic activity is an issue for empirical investigation.…”

The Role of Remittances in Financial Crisis: Empirical Evidence from Macedonia

“…Ratha (2003) also corroborates the point that migrants may also increase remittances in times of economic hardship. However, since the decision to remit money is influenced not only by altruism, but by a number of determinants, it is conceivable that remittances may be procyclical or even acyclical with the GDP in some of the recipient countries (Sayan, 2006).…”

Rainfall, Financial Development, and Remittances: Evidence from Sub-Saharan Africa

“…Sayan (2006) investigates the business-cycle behavior of remittances for 12 developing countries and fails to find strong evidence for a significant average countercyclical relationship.…”