Remittances and disaggregated country risk ratings in Tunisia: an ARDL approach

Abstract

ABSTRACT Tunisia is currently facing political, economic and financial problems which have an impact on the flow of remittances. This study is the first attempt to give a thorough analysis of a two-way relationship between workers’ remittances and ICRG disaggregated country risk ratings (such as economic, financial and political risks) in Tunisia in short and long run, spanning the period 1984–2016. In an attempt to achieve this key objective, an ARDL approach combined with CUSUM and CUSUMSQ tests, and Wald test are adopted to investigate this linkage. The results show the presence of a long-run relationship. In addition, it could be deduced that in the long-run, economic risks have a negative impact on remittances, whereas in the short-run, they have a positive impact. The financial risk increases remittances because it includes variables related to remittances such as exchange rate stability. A higher level of remittances carries a higher level of financial risk in the short and long-runs. These results engage policy-makers to minimize this negative effect and channel remittances towards investment purposes. Results also indicate that, in response to an increase in remittances, the political risk decreases in the short run but increases in the long run.