Remittances and Real Exchange Rate in CIS Countries

For CIS countries, remittances have been growing drastically over the past decade. They have become an important source of financial inflows and make from 1% to 45% of domestic product, and their share is still expanding. This paper explores the empirical evidence of impacts that remittance inflows can have on domestic economy, particularly on real exchange rate. I test whether increasing remittances lead to appreciation of the real exchange rate and cause Dutch disease phenomenon.Using panel data for six CIS countries over the time period 1998-2011, I test the hypothesis with the help of fixed-effects least squares models with and without instrumental variables (OLS and 2SLS). The findings indicate that indeed money sent by migrant workers from abroad ten to appreciate the local currency and cause Dutch disease