Haddad HB and Choukir J
This study employs the Time-varying Parameters Vector Autoregressive (TVP-VAR) model with stochastic volatility to examine the impact of the remittance outflows on non-oil GDP, investment and current account balance (CAB) in Saudi Arabia for 1970-2012. Results show that the TVP-VAR model is of use for examining inter-temporal dynamics between remittance outflows, non-oil GDP, investment and the CAB in Saudi Arabia. Moreover, an analysis of time-varying impulse responses of non-oil GDP, investment and the CAB to structural remittance outflows shocks suggests that responses depend on the magnitude of structural volatilities of remittance outflows. In particular, highly volatile remittance outflow levels are likely to have persistent negative effects on non-oil GDP, investment and CAB levels in the 1970s and the1980s. However, we observe that the time-varying response of non-oil GDP to remittance shocks displays a negative pattern during 1980-1992 and positive otherwise. Remittances have a persistent negative effect on CAB over the period 1971-2012. Regarding the effect of remittances on investment, the results indicate that there have been sizeable negative responses of investment to remittances shocks during the period 1985-1995. These findings imply that monetary policies must consider high- and low-volatility regimes of remittance outflows and time-varying patterns of relationships non-oil GDP, investment, CAB and remittance outflows. Finally, our results put forward monetary incentives to keep in foreign workers’ earnings to promote investment, such as free participation in the stock market, and to enhance current account surplus.
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