Are remittances an instrument of stabilization and funding in the euro area?

ABSTRACT

In this study, we explore the specific question of the counter cyclicality of remittances in the euro area, namely, if they could be used to stabilize the business cycle and as an additional source of external financing. This research uses data for 13 euro area countries in the period 2004–2013. For whole of the sample, our two hypotheses concerning stabilization and external financing are rejected, but Lithuania and Greece are outliers. Remittances seem to have had a macroeconomic stabilizing effect on Lithuania and to have mitigated in part the liquidity problems that Greece has faced since the sovereign debt crisis.

KEYWORDS:

• Remittances
• business cycles
• procyclical
• countercyclical
• euro area

JEL CLASSIFICATION:

• E32
• F24

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The choice of countries and the period of analysis were constrained by the availability of data regarding remittances.

² The description and sources of these variables are presented in Table B in the Appendix.

³ For the whole sample, the correlation coefficient is 0.70 and only the pairwise correlation coefficients for Cyprus and Greece are not significant at the 5% level.

⁴ Given the small number of observations per country, the results of these interaction terms should be interpreted with caution.

⁵ As previously, the choice of the most appropriate estimation technique was supported by the results of the Hausman and Breush–Pagan LM tests.

Additional information

Funding

This work was supported by national funds provided by the Portuguese Foundation for Science and Technology (FCT) [project number UID/SOC/04011/2013].