Essays on Remittances and Macroeconomic Policy in Developing Economies

Abstract

The first chapter examines remittances impact on the output growth via human capital accumulation. This channel of transmission of remittance shocks has not been studied theoretically in economic literature despite the positive impact of remittances on human capital being documented empirically both in single-country and cross-country studies. The baseline model is calibrated to the economy of the Philippines. The key findings of the quantitative analysis indicate that despite being transitionary by nature, a positive remittance shock has a permanent impact on the output trend (in levels), which shifts upward relative to its preshock trend due to the transitionary change in the dynamics of the growth rate of human capital. The proposed extended model in the second chapter augments the baseline model with the labor market dynamics channel as in Finkelstein Shapiro and Mandelman (2016), and it can be applied to perform welfare analysis and study policy implications. The third chapter examines the impact of global economic crises on remittance flows. Using the panel data spanning from 1997-2021 on 178 largest remittance corridors, I emprirically estimate the countercyclical nature of remittance inflows and procyclical nature of remittance outflows, and obtain the results that are consistent with the current findings in the economic literature. I show that during the periods of global crises the impact of procyclical remittance outflows dominates which result in the overall decrease of the remittance flows. As a robustness check, I conduct similar analysis for the smaller subsamples consisting of the remittance corridors that have a high share in the distribution of remittance inflows. The fourth chapter examines the effectiveness of fiscal policy in Egypt under different debt regimes. In so doing, we (joint work with Yacoub Alatrash, University of Washington, Department of Economics) evaluate the relationship between expansionary fiscal policy and real economic growth. Two elements of particular interest are the (non)linearity and the impact of domestic debt on macroeconomic variables. Specifically, we search for a threshold effect by applying the Hansen (2000) sample-splitting threshold regression model. We establish with statistical significance that fiscal expenditure leads to greater real GDP in a low-debt regime (81.5\% domestic debt-to-GDP threshold) and lower real GDP in a high domestic debt above the threshold. We further explore and test possible theoretical explanation for the findings. The paper concludes with a discussion of policy implications of this research.