Modelling the Macroeconomic Determinants of Workers' Remittances: The Case of Jordan

Abstract

This paper explores the main macroeconomic factors, in both host and home countries that affect workers’ remittances. Several macroeconomic variables are taken into account in a cointegration analysis of the long-run relationship among remittances and their macroeconomic determinants as well as the short-run dynamics. The study employs the ARDL and VECM approaches to find out the main macroeconomic determinants that affect remittances to Jordan. Annual data for the period 1972-2009 are used. The empirical results show that macroeconomic factors of host countries are much more significant than home country macroeconomic factors. This confirms the fact that remittances are most likely to be influenced by external factors rather than internal factors. The bounds test used in the ARDL framework indicates that remittances flow to Jordan is cointegrated with the level of income in Jordan, level of income and exchange rates in the host countries. The findings of the study show that the speed of adjustment in the VECM is significant and relatively slow. Keywords: Workers’ Remittances; Time Series Analysis; Cointegration; ARDL; VECM; Jordan. JEL Classifications: C22; C32; F24