Boomerang Effect of Remittances: Cross-Country Evidence

We test the boomerang effect in remittances (the effect of remittances on imports) for the top two global remittances recipients – China and India – and the top two recipients in Africa – Egypt, and Nigeria – from 1981 to 2019. The first two countries have more domestically developed productive capacities than the last two countries, making them (China and India) potentially able to shrug off a remittance boomerang than Egypt and Nigeria. We find asymmetry in the relationship between remittances and imports in Nigeria using the nonlinear autoregressive distributed lag (NARDL) model of Shin et al. (2014). We mostly find positive asymmetric effects in the short- and long-run, thus confirming the boomerang effect in Nigeria. For Egypt, we find a short-run, OLS asymmetric positive effect of remittances on imports, confirming the boomerang effect. The short-run OLS symmetric effect of remittances on imports in China and India is negative, refuting the boomerang effect in both countries. To reduce the boomerang effect in Nigeria and Egypt, efforts must be made to improve and expand the productive capacity of the domestic economy so that most of the inward remittances will be spent on commodities produced in the domestic economy, and reduce imports.

Boomerang Effect of Remittances: Cross-Country Evidence Keywords:

Asymmetry , Boomerang , NARDL , Remittances