Migrant Remittances and Exchange Rate Regimes in the Developing World
Author(s)
Singer, David Andrew
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This article argues that the international financial consequences of immigration exert a substantial 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 an international risk-sharing mechanism for developing countries. The observable implication of these arguments is that remittances increase the likelihood that policy makers adopt fixed exchange rates. An analysis of data on de facto exchange rate regimes and a newly available data set on remittances for up to 74 developing countries from 1982 to 2006 provides strong support for these arguments. The results are robust to instrumental variable analysis and the inclusion of multiple economic and political variables.
Date issued
2010-05Department
Massachusetts Institute of Technology. Department of Political ScienceJournal
American Political Science Review
Publisher
Cambridge University Press
Citation
Singer, David Andrew. “Migrant Remittances and Exchange Rate Regimes in the Developing World.” American Political Science Review 104.02 (2010): 307–323. Web.© American Political Science Association 2010.
Version: Final published version
ISSN
0003-0554
1537-5943