International transfers and Dutch Disease: evidence from South Asian countries

ABSTRACT

We investigate the Dutch Disease impact of migrant's remittances and foreign aid using a yearly panel data of eight South Asian countries for the period of 1975–2013. An increase in per capita remittances erodes international competitiveness by appreciating the real effective exchange rate, also leading to a fall in traded to non-traded goods production ratio in the economy; hardly any statistically significant impact of foreign aid on these variables is detected. These point to premature deindustrialization consequences of large remittance inflows that could slow down structural transformation towards manufacturing. Although remittances and foreign aid may have a significant impact on poverty alleviation in this region, policy planners should pay attention to more effective utilization of remittances and foreign aid.

KEYWORDS:

• Dutch disease
• foreign aid
• real effective exchange rate
• remittances
• premature deindustrialization

JEL CLASSIFICATION:

• F24
• F41

Acknowledgements

Md. Bakhtiar Uddin is grateful to the Netherlands Fellowship Programme (NFP) for financing this study at the ISS. The authors are also grateful to an anonymous referee of this journal for valuable comments that have improved the paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The Dutch Disease (November 26, 1977). The Economist, pp.82–83 (as cited in Nsor-Ambala 2015).

2. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

3. Bureau of Manpower, Employment and Training (BMET), Ministry of Expatriates’ Welfare and Overseas Employment, Bangladesh.

4. Annual Report, 2014-15, Ministry of Overseas Indian Affairs, India.

5. Labour Migration for Employment: A Status Report for Nepal, 2013/14, Ministry of Labour and Employment, Nepal.

6. Final year book 2013–14, Ministry of Overseas Pakistanis and Human Resource Development, Pakistan.

7. Ministry of Foreign Employment, Sri Lanka.

Additional information

Notes on contributors

Md. Bakhtiar Uddin

Md Bakhtiar Uddin is associate professor of economics at Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh, Bangladesh. He is lifetime member of the Bangladesh Economic Association. He is on the editorial board of the journal of Nazrul University, a journal of the affiliated institution. He ran a project on ‘Demand for Primary Health Care Services: The Case of Community Clinic in Bangladesh’ financed by the affiliated University. He is the author of nine research articles published on national and international journals. His research interests are in the area of economics of development – especially in the development dynamics of international remittances, labour economics, macroeconomics, and international economics.

Syed Mansoob Murshed

Syed Mansoob Murshed is professor of the Economics of Peace and Conflict at the International Institute of Social Studies (ISS), Erasmus University in the Netherlands and is also Professor of Economics at Coventry University in the UK. He was the first holder of the rotating Prince Claus Chair in Development and Equity in 2003. He was a Research Fellow at UNU/WIDER in Helsinki where he ran Projects on Globalization and Vulnerable Economies and Why Some Countries Avoid Conflict, While Others Fail. He also ran a project on The Two Economies of Ireland, financed by the International Fund for Ireland at the Northern Ireland Economic Research Centre (NIERC), Belfast. He is the author of seven books and over 140 refereed journal papers and book chapters. His latest monograph, published in 2010, is Explaining Civil War (Edward Elgar). He is on the Editorial boards of Peace Economics, Peace Science and Public Policy (PEPS), as well as Civil Wars. He is also the coordinator of the Dutch Scientific Research Council (NWO) CoCoon research project on the effect of on the environment and conflict in Bolivia and Ecuador (NEBE). His research interests are in the economics of conflict, resource abundance, aid conditionality, political economy, macroeconomics and international economics.