TITLE:
The Impact of Remittances on the Trade Balance: Empirical Evidence from North Macedonia
AUTHORS:
Rilind Ademi, Zana Beqiri Luma, Bujamin Bela
KEYWORDS:
Trade Balance, Remittances, North Macedonia, Current Transfers, Informal Flows
JOURNAL NAME:
Theoretical Economics Letters,
Vol.12 No.3,
June
15,
2022
ABSTRACT: The impact of remittances on various economic
indicators has been analyzed for many developing countries, however, there is
little evidence about their impact on the trade balance. For North Macedonia,
remittances play an important role because they completely compensate the trade
deficit, but on the other hand these remittances are expected to affect the
trade deficit, because a large part of these remittances is oriented for
further consumption. This paper aims to examine the impact of remittances on
North Macedonia’s trade balance using quarterly data for the period Q12003 -
Q32019. Like many developing countries, North Macedonia’s economy relies
heavily on remittance flows making it an interesting laboratory for the
research question at hand. We differentiate between formal remittances, as
measured by workers’ compensations and informal remittances, as measured by
private current transfers. We find that private current transfers have a
significant impact and improve the trade balance, whereas workers’ compensation
significantly worsens the trade balance. In addition, our results show that
inflation worsens the trade balance and past trade rates themselves affect current
trade rates. These results point to the need for a more accurate measure of
remittance flows in official statistics to be able to capture the full extent
of their impact in various economic indicators of a country.