Abstract
Purpose Migrants’ remittances to Egypt have increased considerably in both size and importance over the past 40 years. This increase has made Egypt one of the top remittance recipients in the world and the leading recipient country in the Middle East. As migrant remittances are one of Egypt's main sources of foreign capital, this study aims to identify the impact of these remittances on economic growth. Design/methodology/approach The study collects annual data on migrant remittances sent to Egypt during the period 1980–2017. The study uses the Augmented Dickey–Fuller test and Johnsen's Co-integration test to establish long-run relationships between variables. Then, a vector error correction model (VECM) is used to combine long-run and short-run dynamics, and a Granger causality test is performed. Finally, diagnostic tests of the VECM are conducted. Findings Results reveal that migrants’ remittances to Egypt are countercyclical in the sense that they have a long-term negative impact on economic growth. These results are determined by the Granger causality between migrants' remittances, inflation rate and imports. Practical implications The study can help policymakers to develop appropriate policies to turn migrants' remittances into a reliable source of capital that could result in a stable economic growth. Originality/value Although various empirical studies have examined the growth effect of remittances, most of them are based on cross-country data. This study contributes to the field by attempting to close a gap in the literature by empirically analyzing the impact of remittances on a single country over a long period.
Highlights
Over the past three decades or more, migrant remittance inflows to developing economies have been considered an important economic development tool because of their impact on the overall growth of the recipient economies (Aggarwal et al, 2006, p. 1)
Migrants’ remittances are among the main source of foreign exchange for many developing economies, and their value has increased in importance for several decades
While policymakers increasingly recognize the potential effects of remittances on economic growth, the net growth impact of those remittances is still controversial
Summary
Over the past three decades or more, migrant remittance inflows to developing economies have been considered an important economic development tool because of their impact on the overall growth of the recipient economies (Aggarwal et al, 2006, p. 1). A large portion of the previous literature on remittances focused on their contribution as a source of foreign capital for economic development in migrants’ home countries Analyzing panel data for 36 African countries over the period 1980–2004, Fayissa and Nsiah (2010) found that remittance inflows had a positive impact on the economic growth of migrants’ home countries by providing an alternative way to finance investment and helping to alleviate cash constraints. A World Bank study conducted in 2006 showed that large remittances undermined long-term economic growth in 22% of recipient countries because the inflows resulted in exchange rate appreciation and a reduction in subsequent exports. This literature review indicates that the impact of remittance inflows on the economic growth of the Egyptian economy cannot be predicted from previous studies
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