Remittances and the Dutch Disease: an empirical analysis in the context of Ethiopia
The Dutch Disease, initially associated with natural resource discovery, has evolved to include various capital inflows. This study investigates the relationship between remittance inflows and the Dutch Disease in Ethiopia, focusing on the real effective exchange rate. Using a 30-year time series (1...
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Taylor & Francis Group
2024-12-01
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| Series: | Cogent Social Sciences |
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| Online Access: | https://www.tandfonline.com/doi/10.1080/23311886.2024.2338868 |
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| author | Mohammed Yimam Ali Getachew Abebaw Ayele |
| author_facet | Mohammed Yimam Ali Getachew Abebaw Ayele |
| author_sort | Mohammed Yimam Ali |
| collection | DOAJ |
| description | The Dutch Disease, initially associated with natural resource discovery, has evolved to include various capital inflows. This study investigates the relationship between remittance inflows and the Dutch Disease in Ethiopia, focusing on the real effective exchange rate. Using a 30-year time series (1991–2020) and a Vector Error Correction Model, the study finds a robust long-run relationship among remittances, official development assistance, money supply, terms of trade, domestic credit, and real gross domestic product. The empirical results reveal that remittances, along with other variables, significantly affect the real effective exchange rate in both the short and long run. Contrary to the Dutch Disease hypothesis, remittance inflows did not lead to real effective exchange rate appreciation in the long run. Trade liberalization and government consumption of non-tradables were also identified as influential factors. The short-run dynamics indicate a significant speed of adjustment towards equilibrium, emphasizing the importance of understanding the macroeconomic impacts of remittances on real effective exchange rate. Policy implications include managing real effective exchange rate through targeted interventions, considering trade liberalization to enhance export competitiveness, and designing remittance policies to utilize capital for economic development without fearing Dutch Disease consequences. The study also recommends the disaggregation of foreign aid data for more nuanced policy insights. Overall, this research contributes valuable insights for policymakers in navigating the complexities of remittances, economic variables, and the real effective exchange rate in Ethiopia, facilitating informed and effective policy decisions. |
| format | Article |
| id | doaj-art-5ffa45781bef4ce08e9f6c68868e81eb |
| institution | Kabale University |
| issn | 2331-1886 |
| language | English |
| publishDate | 2024-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Social Sciences |
| spelling | doaj-art-5ffa45781bef4ce08e9f6c68868e81eb2025-08-20T04:03:21ZengTaylor & Francis GroupCogent Social Sciences2331-18862024-12-0110110.1080/23311886.2024.2338868Remittances and the Dutch Disease: an empirical analysis in the context of EthiopiaMohammed Yimam Ali0Getachew Abebaw Ayele1Department of Economics, Woldia University, Woldia, EthiopiaDepartment of Economics, Bahir dar University, Bahir Dar, EthiopiaThe Dutch Disease, initially associated with natural resource discovery, has evolved to include various capital inflows. This study investigates the relationship between remittance inflows and the Dutch Disease in Ethiopia, focusing on the real effective exchange rate. Using a 30-year time series (1991–2020) and a Vector Error Correction Model, the study finds a robust long-run relationship among remittances, official development assistance, money supply, terms of trade, domestic credit, and real gross domestic product. The empirical results reveal that remittances, along with other variables, significantly affect the real effective exchange rate in both the short and long run. Contrary to the Dutch Disease hypothesis, remittance inflows did not lead to real effective exchange rate appreciation in the long run. Trade liberalization and government consumption of non-tradables were also identified as influential factors. The short-run dynamics indicate a significant speed of adjustment towards equilibrium, emphasizing the importance of understanding the macroeconomic impacts of remittances on real effective exchange rate. Policy implications include managing real effective exchange rate through targeted interventions, considering trade liberalization to enhance export competitiveness, and designing remittance policies to utilize capital for economic development without fearing Dutch Disease consequences. The study also recommends the disaggregation of foreign aid data for more nuanced policy insights. Overall, this research contributes valuable insights for policymakers in navigating the complexities of remittances, economic variables, and the real effective exchange rate in Ethiopia, facilitating informed and effective policy decisions.https://www.tandfonline.com/doi/10.1080/23311886.2024.2338868Dutch diseaseremittancesreal effective exchange ratevector error correction modelGeorge Mudimu, Development Sciences, Marondera University of Agricultural Sciences and Technology, Marondera, ZimbabweEconomics |
| spellingShingle | Mohammed Yimam Ali Getachew Abebaw Ayele Remittances and the Dutch Disease: an empirical analysis in the context of Ethiopia Cogent Social Sciences Dutch disease remittances real effective exchange rate vector error correction model George Mudimu, Development Sciences, Marondera University of Agricultural Sciences and Technology, Marondera, Zimbabwe Economics |
| title | Remittances and the Dutch Disease: an empirical analysis in the context of Ethiopia |
| title_full | Remittances and the Dutch Disease: an empirical analysis in the context of Ethiopia |
| title_fullStr | Remittances and the Dutch Disease: an empirical analysis in the context of Ethiopia |
| title_full_unstemmed | Remittances and the Dutch Disease: an empirical analysis in the context of Ethiopia |
| title_short | Remittances and the Dutch Disease: an empirical analysis in the context of Ethiopia |
| title_sort | remittances and the dutch disease an empirical analysis in the context of ethiopia |
| topic | Dutch disease remittances real effective exchange rate vector error correction model George Mudimu, Development Sciences, Marondera University of Agricultural Sciences and Technology, Marondera, Zimbabwe Economics |
| url | https://www.tandfonline.com/doi/10.1080/23311886.2024.2338868 |
| work_keys_str_mv | AT mohammedyimamali remittancesandthedutchdiseaseanempiricalanalysisinthecontextofethiopia AT getachewabebawayele remittancesandthedutchdiseaseanempiricalanalysisinthecontextofethiopia |