Do remittances produce Dutch disease effects in the Maghreb

Remittances, similar to other capital inflows (foreign aid or foreign direct investment, for example) can potentially cause an appreciation of the real value of home currency (real exchange rate appreciation) and thus reduce the global competitiveness of the home economy’s exports. This phenomenon is known in the economic literature as Dutch Disease. The potential for remittance inflows to reduce economic growth via a Dutch Disease effect has been much documented in a number of studies (Taylor, 1999; Chami et al, 2005; Mughal, 2013; Imai et al, 2014).

The three largest Maghreb countries, Morocco, Tunisia, and Algeria have traditionally benefited from significant inflows of workers’ remittances. Yet, the number of studies that have empirically explored the possibility that remittances may produce a Dutch Disease effect in the three Maghreb countries, while controlling for the impacts of other capital inflows and the roles of institutions and macroeconomic policies, are at best very limited. In this paper, I try to fill this gap in the literature by performing time series analysis using vector autoregression (VAR) estimations to study the dynamics of the relationships among the variables. The VAR technique is a non-structural approach which imposes little a priori structure, and allows the estimation of relationships without using a structural model.

I use data from the IMF and World Bank online databases (on relevant variables) covering the period of 1975 to 2013. Given the differences in macroeconomic policies and (perhaps to a lower extent) in institutional quality, I expect to find differences in the effects of remittances as well as in the channels through which remittances can cause Dutch Disease.