Abstract

Remittances are an important inflow of funds in many developing economies. These remittances relate to the classic 'transfer problem' and hence likely affect the exchange rate. In this paper, I find that remittances have a significant negative impact on trade balances and that the driving force is the exchange rate. Additionally, I find that remittance has a positive impact on trade openness, and hence decrease in the trade balance is because the growth rate of imports is higher than the growth rate of exports.