Unraveling Dutch disease: remittances and exchange rate dynamics pre and post-GFC trends in 199 countries

Abstract

Purpose

This study's main objective is to assess remittances' effect on real exchange rate movements pre- and post-GFC.

Design/methodology/approach

The sample for this study includes 199 countries and independent territories for the period between 1999 and 2019. Furthermore, this period is divided into pre-GFC (inclusive) from 1999 to 2009 and post-GFC from 2010 to 2019. This paper uses a one-step GMM estimation on linear dynamic panel data.

Findings

The significant results from this study show that the exchange rate of remittances depreciates in every country, especially in low-middle-income countries. It has been found that, in high-income countries, the first lag of remittances has a significantly negative impact.

Research limitations/implications

This study examines macroeconomic variables and remittance impacts, revealing clear trends in consumption patterns and exchange rates. Families use remittances for savings and investments, depreciating exchange rates. This suggests Dutch disease in economies, especially after GFC.

Practical implications

Policy implications involve increasing exporter costs through variable taxes or retention, depreciating exchange rates and encouraging recovery from the Dutch disease. This promotes commodity trade and long-term economic benefits, while self-balancing protects against currency value depreciation.

Originality/value

This concepts originality lies in the focus on the impact of remittances on exchange rates and sectoral imbalances in various income-level countries over a significant period. The proposed policy implications aim to address the potential negative consequences of remittances on the economy, making it a valuable contribution to the existing research in this field.

Citation

Sadiq, R., Nosheen, S. and Yasser, F. (2025), "Unraveling Dutch disease: remittances and exchange rate dynamics pre and post-GFC trends in 199 countries", Managerial Finance, Vol. 51 No. 2, pp. 299-320. https://doi.org/10.1108/MF-08-2023-0479