Grants, Remittances, and the Equilibrium Real Exchange Rate in Sub-Saharan African Countries

Abstract

This paper builds on the methodology developed by Chudik and Mongardini (2007) to estimate the relationship between grants and remittances and the equilibrium real exchange rate in Sub-Saharan African (SSA) countries using panel techniques. The results indicate that grants and remittances are not associated, in the long run, with an appreciation of the real effective exchange in SSA and are therefore not likely to give rise to Dutch disease effects. These findings suggest that grants and remittances may be serving to ease supply constraints or boost productivity in the non-tradable sector in the recipient economies.Official development assistance;Africa;Capital inflows;Low-income developing countries;Inward remittances;Real effective exchange rates;Millennium Development Goals;Economic models;exchange rate, real exchange rate, remittances, exchange rates, real exchange rates, effective exchange rate, real effective exchange rate, effective exchange rates, foreign exchange, exchange rate overvaluation, real exchange rate appreciation, exchange rate appreciation, real exchange rate disequilibria, exchange rate misalignments, real exchange rate overvaluation, real exchange rate movements, impact of remittances, exchange rate movements, real exchange rate misalignments, real exchange rate disequilibrium, workers ? remittances, exchange rate index, international transfer, increase in remittances, exchange rate policy, exchange rate adjustments, remittance