How Remittances solve the Unholy Trinity - PowerPoint PPT Presentation

how remittances solve the unholy trinity n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
How Remittances solve the Unholy Trinity PowerPoint Presentation
Download Presentation
How Remittances solve the Unholy Trinity

play fullscreen
1 / 25
Download Presentation
How Remittances solve the Unholy Trinity
142 Views
kort
Download Presentation

How Remittances solve the Unholy Trinity

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. How Remittances solve the Unholy Trinity Singer, David Andrew. 2010. Migrant Remittances and Exchange Rate Regimes in the Developing World. American Political Science Review 104 (2): 307-323.

  2. Plan for today • Why emigrate? Remittances • Countercyclical • Fixed Exchange Rate (Fixed XR) • A Triangle • Will change the way you see international political economy! • Testing the argument • How to read statistical results -- a cheat sheet

  3. Previously in class: • Who is against immigration? • Answer: • People who face job competition from immigrants • The scarce factor of production • (Also: cultural values matter) • This class: Why are the immigrants here?

  4. Remittances! • A lifeline for poor countries • A sizeable share of GDP • >15% of GDP for: • El Salvador • Haiti • Honduras • Jordan • >5% of GDP for 42 countries in 2004. • Global flows: $318 billion in 2007 • > other important external financial sources (ODA, bank lending, private investment)

  5. Remittances in film:

  6. 3 films where Chinese immigration plays a role: Scarface… Asian-style! Chinese immigrants in Japan Chinese immigrants in Barcelona Chinese (and other Asian) migration to the United States

  7. Why <3 remittances? • Unrequited • Don’t have to pay them back • No obligations • Cannot be withdrawn • No capital flight • Most importantly for this lesson… • … • COUNTERCYCLICAL!!!

  8. Countercyclical • When times are good back home, migrants send less money • But when times are hard, migrants send more money • Example: If a natural disaster hits, migrants send more money home in a hurry! • But what if the value of what you send home keeps varying? •  uncertainty • Maybe migrants send less $$$ under uncertainty • (Maybe the value of what they send drops) • Solution: • FIXED EXCHANGE RATES (XR)

  9. Fixed XR • Provides certainty for international exchanges • trade & financial exchanges • But it comes at a cost: • Monetary policy • And now… • A TRIANGLE

  10. Free Capital Flow Inconsistent/Unholy Trinity Or “Trilemma”: a country can only have 2 out of 3 of these Fixed Exchange Rate Sovereign Monetary Policy

  11. Fixed Exchange Rate The Trilemma Open Capital Flows Sovereign Monetary Policy

  12. Fixed Exchange Rate The Trilemma Open Capital Flows Sovereign Monetary Policy

  13. Argument • In an open-economy, fixed XR takes away monetary policy autonomy • Without monetary policy autonomy, governments cannot take countercyclical measures against (alternatively) • unemployment • inflation • But remittances flow counter-cyclically! • Fixed XR help bring in remittances*** • Remittances address cyclic problems of unemployment/inflation!

  14. Test the argument! (Side note: Do fixed exchange rates lead to more remittances? Essay topic!)

  15. A simple guide to How to read basic “regression” results • What is the analysis “explaining”? Dependent variable, usually in the title of the table • What is the unit of analysis? How many observations… of what? (In most IPE studies: “country-years”) • What is the effect of each independent (explanatory) variable? Just ask: Is the “coefficient” positive/negative? • Are the effects statistically significant? • Star-gazing *, **, *** • Is the standard error <1/2 the size of the coefficient? • OR: is the t-stat/z-stat >1.96? • OR: is the p-value<0.05?

  16. Check list: • What is the dependent variable (the thing we want to explain – usually in the table’s title)? • What is the unit of analysis (the nature of the observations)? • What are the independent variables of interest? • Main independent variable(s) • Control variables • What are their effects? In a non-linear model, just look for “positive” or “negative” COEFFICIENTS • Is the model linear or non-linear? • How confident are we in each effect? 3 ways to report: (star gazing) • Standard error: 95% significant if < ½ the size of the coefficient… really <1/1.96) • T-stat (or Z-stat): 95% significant if >1.96 • p-value: 95% significant if < 0.05

  17. Instrumental variable approach? • What if people are more likely to send $$$ home if the XR is fixed? • Argument is: Remittances  Fixed XR • But it might really be: Fixed XR  Remittances • Possible “endogeneity” ! • (Or mutual causation) • To test this, we can perform a quasi-experiment • Find something correlated with remittances, but not directly related with the XR • E.g., Emigration rates • Emigration  Remittances • But no direct relationship between emigration and XR • (You could challenge this) • So any relationship between emigration and XR captures the effect of remittances on XR, removing possible “endogeneity.”

  18. Take-aways • Why emigrate? Remittances • Countercyclical • Fixed Exchange Rate (Fixed XR) –vs- Floating XR • The Unholy Trinity / Inconsistent trinity / TRILEMMA • How to read statistical results -- a cheat sheet • (Instrument / Instrumental Variable)

  19. Thank you