Modelling the Growth and Cyclical Effects of International Remittances In Fiji

Abstract

We model the trend/permanent and cyclical associations between international remittances and GDP using annual data from Fiji from 1979 to 2020. An extended co-feature methodology which incorporates asymmetric effects in the cyclical models is used. The findings indicate a significant and positive association between the permanent components of remittances and GDP. The cyclical associations suggest that an increase in remittances is negatively associated with negative GDP shocks in recessions providing some support for its function as an insurance mechanism. Positive shocks to remittances are not associated with positive GDP shocks suggesting that remittances may not contribute to an overheating economy. The findings stress the importance of cyclicality in the association between remittances and GDP. Policymakers benefit with information on how remittances influence economic activity in different phases of the business cycle. © 2024 Informa UK Limited, trading as Taylor & Francis Group.