BSP International Research Conference on Remittances
Theme: The Macroeconomic Consequences of Remittances:
            Implications for Monetary and Financial Policies in Asia
Venue: Garden Ballroom, EDSA Shangri-La Hotel, Ortigas Center, Mandaluyong City
            Metro Manila, PHILIPPINES
Date   : 30-31 March 2009 (Monday and Tuesday)
Website: http://www.bsp.gov.ph/events/ircr/index.htm

Conference Papers


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NoAuthor / Title / Abstract
1.Author(s): Federico S. MANDELMAN and Andrei ZLATE
Affiliation(s): Federal Reserve Bank of Atlanta and Boston College

Title: Immigration and the Macroeconomy: An International Business Cycle Model

Abstract:

We analyze the dynamics of labor migration and the insurance role of remittances in a two-country, real business cycle framework. Emigration increases with the expected stream of future wage gains, but is dampened by the sunk cost reflecting border enforcement. During booms in the destination economy, the scarcity of established immigrants lessens capital accumulation, labor productivity and the native wage. The welfare gain from the inflow of unskilled labor increases with the complementarity between skilled and unskilled labor, and with the share of the skilled among native labor. The model matches the cyclical dynamics of the unskilled immigration from Mexico.

Discussant: Ma. Teresa PUNZI, Bank of Spain and University of Alicante

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2.Author(s): David Andrew SINGER
Affiliation(s): Massachusetts Institute of Technology

Title: Migrant Remittances and Exchange Rate Regimes in the Developing World

Abstract:

This article argues that the international financial consequences of immigration exert a strong influence on the choice of exchange rate regimes in the developing world. Over the past two decades, migrant remittances have emerged as a significant source of external finance for developing countries, often exceeding conventional sources of capital such as foreign direct investment and bank lending. Remittances are unlike nearly all other capital flows in that they are stable and move countercyclically relative to the recipient country’s economy. As a result, they mitigate the costs of forgone domestic monetary policy autonomy and also serve as the “risk-sharing” mechanism required by standard political economy models of currency unions. The observable implication of these arguments is that remittances increase the likelihood that policymakers adopt fixed exchange rates. An analysis of data on de facto exchange rate regimes and a newly available dataset on remittances for up to 74 developing countries from 1983 to 2004 provides strong support for these arguments; the results are robust to instrumental variable analysis and the inclusion of multiple economic and political control variables.

Discussant: Pablo A. ACOSTA, World Bank

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3.Author(s): Prachi MISHRA and Antonio SPILIMBERGO
Affiliation(s): International Monetary Fund

Title: Exchange Rate and Wages in an Integrated World

Abstract:

We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981–2005, we find that the elasticity of domestic wages to real exchange rate is 0.1 after a year for countries with high barriers to external labor mobility, but about 0.4 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.

Discussant: David Andrew SINGER, Massachusetts Institute of Technology

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4.Author(s): Emmanuel K.K. LARTEY, Federico S. MANDELMAN and Pablo A. ACOSTA
Affiliation(s): California State University-Fullerton, Federal Reserve Bank of Atlanta and World Bank

Title: Remittances, Exchange Rate Regimes and the Dutch Disease: A Panel Data Analysis

Abstract:

Using disaggregated sectorial data, this study shows that rising levels of remittances have spending effects that lead to real exchange rate appreciation, and resource movement effects that favor the non-tradable sector at the expense of tradable goods production. These are two characteristic of the phenomenon known as Dutch Disease. The results further indicate that these effects operate stronger under fixed nominal exchange rate regimes.

Discussant: Ioannis HALIKIAS, International Monetary Fund

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5.Author(s): Ioannis HALIKIAS
Affiliation(s): International Monetary Fund

Title: Workers’ Remittances and External Equilibrium: An Application to the Philippines

Abstract:

Motivated by the growing importance of workers’ remittances in developing and emerging market economies, this paper explores their impact on a country’s equilibrium current account position and equilibrium exchange rate. Plausible extensions of a standard optimizing model suggest that consumption may not rise sufficiently to fully offset an increase in remittances, implying a positive impact on the economy’s equilibrium saving-investment balance. Such an effect is strongly supported by the paper’s empirical evidence, which points to a offset coefficient significantly less than one. Applied to the case of the Philippines, one of the largest remittance recipients, the paper’s results confirm that taking remittances into account has a major impact on the estimated equilibrium saving-investment balance and the peso’s equilibrium real exchange rate.

Discussant: Federico MANDELMAN, Federal Reserve Bank of Atlanta

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6.Author(s): Ma. Teresa PUNZI
Affiliation(s): Bank of Spain and University of Alicante

Title: The Impact of Remittance on the Housing Market in Emerging Economies

Abstract:

Remittances are transfers of money by foreign workers to their home countries. Money sent home by migrants constitutes the second largest financial inflow to many developing countries. About 45 percent of remittance receiving households use this income for asset accumulation such as property. Therefore, an increase in remittances determines a rise in household incomes and consequently an increase in consumption of housing services. The economy should respond to the increasing housing demand with more investment and productivity growth, with strong impact in terms of business cycle. The aim of this paper is to describe the implications of remittance fluctuations for various macroeconomic variables and in particular for the housing market, as a resource of asset reallocation. The paper employs a DSGE model with financial frictions, with large quantitative impacts when the economy is borrowing constrained. The development of flexible credit system makes easier the possibility to send money back home and the facility to ask for a mortgage loan. Therefore, a more developed credit and mortgage system amplifies the impact of remittance on housing. In addition, remittances can make up a large part of a down-payment. Households that receive remittances can access formal financing, if they are able to document their total income, including remittances, to acquire a house (expanding the financial frontier).

Discussant: Prachi MISHRA, International Monetary Fund

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7.Author(s): Nava ASHRAF, Diego AYCINEMA, Claudia MARTINEZ and Dean YANG
Affiliation(s): Harvard Business School, Francisco Marroquin University, University of Chile and University of Michigan

Title: Remittances and the Problem of Control: A Field Experiment Among Migrants from El Salvador

Abstract:

While remittance flows to developing countries are very large in magnitude, it is unknown whether migrants desire more control over the uses to which remittances are put. This research uses a randomized field experiment to investigate the importance of migrant control over the use of remittances. In partnership with a large Salvadoran bank, we offered US-based migrants from El Salvador the opportunity to channel remittances into savings accounts in their home country. Migrants were randomly allocated varying amounts of control over El Salvador-based savings. The results provide evidence that migrants seek to control savings accumulation by remittance recipients back home. When migrants have the option of greater control over El Salvador-based savings accounts, they are more likely to open such accounts and accumulate more savings in them. The effect is large in magnitude: from a base of roughly $400, savings more than double when migrants have the option of full control over accounts, compared to roughly zero savings growth in the control group. Other results suggest that migrants use enhanced control to improve their bargaining power over the savings behavior of recipients, rather than saving autonomously in their own accounts.

Discussant: Tereso S. TULLAO, JR., De La Salle University

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8.Author(s): Edita A. TAN
Affiliation(s): University of the Philippines - Diliman

Title: Migration in An Open-Education Labor Market

Abstract:

The paper is an abbreviated version of a more detailed study of supply response of Filipino workers to foreign demand that was undertaken for the International Organization for Migration. It is a forthcoming monograph of the organization.

The paper puts labor migration in the context of an open education-labor market (ELM). Labor migration in the Philippines is large relative to its population and labor force and has contributed substantially to its foreign exchange earnings and GNP, respectively about 40% and 10%. Key migration statistics were shown to indicate wide variation in destinations and occupational skills of the migrants. How did the market respond to the varying demand for skills in varying places? The paper analyzes the functioning of this market where in some occupations the market appears to work fairly efficiently and in some occupations it does not. Education/training institutions as well as the industries that produce on-the-job training are taken to be a critical participant in this market. The paper points that the size, elasticity and position of supply of each occupational skill are determined by different types of constraints, particularly information and capital market imperfections and the distribution of innate abilities and special talents. The ability and capital constraints are shown to impinge more strongly on high level occupations such as ICT specialists and scientists while imperfect information and capital conditions result in large swings of supply of nurses, teachers and other professional workers. On the other hand, good information in the market of seamen has led to a more efficient supply response to world demand as reflected in their competitive wage rates and nearly close demand-supply equilibrium. There is now a critical shortage of high-tech blue-collar workers such as welders, pipefitters and different types of technicians. The supply is constrained by the underdeveloped state of industries that provide on-the-job training. Most foreign employers require experience in large companies that use modern technologies. This is a more difficult constraint to solve and requires the development of new education/training strategy. The paper concluded with some policy directions.

Discussant: Dean YANG, University of Michigan

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9.Author(s): Tereso S. TULLAO, JR. and John Paolo R. RIVERA
Affiliation(s): De La Salle University

Title: The Impact of Temporary Labor Migration on the Demand for Higher Education: Implication on the Human Resource Development of the Philippines

Abstract:

Overseas employment has been part of Filipino households’ lives. Approximately eight million Filipinos overseas are permanent residents, temporary workers, or irregular migrants. Majority are temporary workers known as Overseas Filipino Workers (OFW). Although, there are some who leave the country for tourism and other purposes but they eventually overstay, seek employment, and become irregular workers overseas.

An interesting impact of temporary labor migration is its effects on demand for higher education. This is significant because the phenomenon of temporary external migration is pervasive; the private sector is readily responsive in providing educational services; and enhanced educational expenditures have positive effects in improving human capital.

In tracing the impact of overseas employment on the demand for higher education, a demand function for higher education programs was estimated. The estimated regression revealed that per capita real gross domestic product, consumer price index for services, and the level of average real remittances have significant effects on the enrollment of various degree programs including accountancy, business and related, education science and teacher training, engineering and technology, and other degrees. Indeed, the possibility of external migration as specified in this equation by the level of average real remittances has a positive and statistically significant impact on the enrollment of the leading academic programs.

The strong relationship between overseas employment and the demand for education has major implications on the human resource development of the country, globalization of trade in educational services, redirection of the thrust in higher education, threat to sectors with heavy migration of manpower, and long term loss to the economy.

Discussant: Dean YANG, University of Michigan

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10.Author(s): Katsushi TABATA, Noriyuki SUZUKI and Akifumi NAKANISHI
Affiliation(s): Daiwa Institute of Research, Ltd.

Title: Remittances and Financial Depth in Asian Countries: Impact on Financial Sectors and Policy Implications

Abstract:

This paper studies the economic impact of remittance flows on the macro economies and financial sectors in Asian Countries with implications on fiscal and monetary policies. We use a dynamic stochastic general equilibrium (DSGE) model for calibration in measuring the effects on real variables under business cycle setting in different levels of financial deepness. Main finding indicates that the increase in remittance flow coincides with economic growth and its expected impact depends on the levels of financial deepening. Focusing on the Philippines for calibration, we attempt to find implications for economic development in a regional perspective.

Discussant: Kelly BIRD, Asian Development Bank

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11.Author(s): Kelly BIRD
Affiliation(s): Asian Development Bank

Title: Philippines: Poverty, Employment and Remittances – Some Stylized Facts

Abstract:

This paper presents key stylized facts about the nexus between poverty, employment and remittances in the Philippines. It is based on preliminary work of an ongoing ADB research project on youth transition from school to better jobs in the Philippines, expected to be completed around August 2009. Three key findings from this paper warrant emphasis. First, remittances are a major antipoverty driver in the Philippines. We estimate that based on data from the 2006 Family Income and Expenditure Survey (FIES), remittances have kept between 4 and 5 million Filipinos out of poverty. Second, contrary to common perceptions about the use of remittances, there is some evidence that families use some proportion of remittances for investment purposes through higher spending on children's education than the national average and transfers to establish and even sustain small enterprises. Third, while there are undoubtedly major pull factors inducing Filipinos to work overseas, there are also major push factors such as chronic poverty and an inefficient labor market as reflected in the slow youth labor market transition from school to better jobs. Labor market reforms will be necessary to create better jobs for young Filipinos.

Discussant: Akifumi NAKANISHI, Daiwa Institute of Research, Ltd.

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