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The impact of remittances outflows on the economy of Poland
Список литературы:
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Lastovetska Roksolana Orestivna, Ivan Franko National University of Lviv, postgraduate student, the Faculty of International Relations E-mail: lastovetska_roksolana@ukr.net
The impact of remittances outflows on the economy of Poland
Abstract: The impact of remittances outflows on the economy of Poland is analyzed in the article. Based on historical data the vector autoregression model (VAR) was built to examine the effects of the sharp rise in the volume of remittances outflows. The model results are presented for the next macroeconomic indicators: GDP, inflation, interest rate and exchange rate.
Keywords: migration, remittances, vector autoregression model (VAR), gross domestic product, inflation, interest rates, real effective exchange rate.
As most countries with transition economies Poland has a negative value of net migration [1]. This allows us to classify it as a standard migrant sending country. However, in terms of global perspective Poland is moving from the traditional donor country to the country of immigration, where despite the consistently high level of emigration there also exists the increase of immigrant workers. In our paper, we first attempt to explore the effects of immigration particularly the impact of remittances outflows on the economy of Poland, considering it not as a donor but as a migrant recipient country.
Accession to the EU intensified the emigration of Poles to other European countries. However, after intensive movements in 2004-2007 the level of emigration in Poland decreased significantly [2]. EU membership and significant flows of foreign investments allowed Poland to intensify not only the return of their own citizens, but also to attract a large number of workers from other countries. In 2013 Ukraine, Germany, Belarus, Lithuania and Russia were top donors of labor force to Poland [1].
In 2013, remittances inflows in Poland amounted to PLN 22 billion, while remittances outflows only reached the point of PLN 5.4 billion [2]. Nevertheless, if to calculate remittances outflows to inflows ratio, one could argue about the existence of a growing trend, indicating the importance of remittances outflows for the economy. Although Poland is not considered as a major immigrant center in Europe, this is an interesting choice of the country for conducting the research. In this paper we are going to investigate the impact of remittances outflows on the economy of EU member, which has been demonstrating consistently high levels of economic growth.
Based on the works of V. Corbo, J. Tessaga [3, 40-44] and W. Charemza, S. Makarova, Y. Prytula, J. Raskina, Y. Vymy-atnina [4] we build an empirical model. In this investigation we try to cover all the possible macroeconomic effects of the sharp growth in remittances outflows. To conduct our research we apply a non structural vector autoregression model (VAR-model). The model includes quarterly data from 2000 to 2014. The empirical database for the study includes data
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from the IMF International Financial Statistics [5], Eurostat [6] and Central Statistical Office in Poland [2].
The dependent variable in our model is a nominal gross domestic product gap (GDP_GAP). Independent variables are the following: LGDPW_GAP — world GDP gap, determined on the basis of EU; LINV_GAP — investment gap, calculated as the sum of foreign direct and portfolio investment; LREM_GAP — outflow remittances gap, calculated according to the BPM5 [7]; LR_GAP — money market rate gap; LREER_GAP — real effective exchange rate gap (Index 2010 = 100 %); LCPI_GAP -inflation gap, calculated as Consumer Price Index, CPI 2010 = 100 %.
In order to avoid the impact of seasonal factors on the results of our model, we conduct a seasonal adjustment of the data using Census X12 method. In case of remittances data we also smooth the values using Hodrick-Prescott filter (lambda = 15). In our model, we do not take ordinary data logarithms but the deviation of variables from their equilibrium state. The equilibrium state is calculated by smoothing the time series using Hodrick-Prescott filter (lambda = 1600). Final variables gaps are obtained as the difference between seasonally adjusted and smoothed time series.
Lag intervals (l = 1; 2) for the model are chosen according to the Schwarz information criterion. AR Roots table shows that our model satisfies the stability condition. Statistical
1) LGDP GAP
significance evaluation is based on the t-statistics values, Coefficient of determination value, Akaike information criterion and Schwarz information criterion.
Shock in a particular variable is transferred to all the other variables of the VAR-model due to its dynamic structure. Using impulse response option we try to show how the growth of one standard deviation in remittances outflows affects the dynamics of GDP, inflation, interest rate and real effective exchange rate over the next eight quarters, during the years of 2014-2016.
To simulate the impulse we use a Cholesky Decomposition Method. When using this option, the order of the variables in the model is crucial, since all components of the overall effect attribute to the variable that first enters the model. In our case, we explore the impact of remittances outflows on the economy of Poland. Obviously, the GDP, as a basic economic indicator, is first to respond to the impulse. We assume that GDP fluctuations affect the inflation rate, and through the interest rate fluctuations affect the real effective exchange rate. In our opinion this kind of Cholesky ordering is the most clear and realistic for the VAR-model.
Figure 1 shows the dynamic of GDP gap, inflation gap, interest rate gap and exchange rate gap in response to the impulse — the growth of one standard deviation (0.07 %) in remittances outflows gap. Results are presented in the corridor of +/- 2 standard deviations.
2) LCPI GAP
Fig. 1. Response to Cholesky one s. d. innovation +/- 2 standard deviations, 2014-2016 ( %)
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Genesis of of neoinstitutional economic theory: analysis and thesaurus
We now turn to the description of our results. VAR-model demonstrates a direct relationship between growth in remittances outflows and the GDP growth in Poland. Impulse of 0.07 % in the gap of remittances outflows has positive impact on the GDP growth in Poland: deviation from the equilibrium increases by 0.001 % in 4 quarters after the shock. In our opinion, this result can be explained by the inverse relationship between the variables, since it is possible that economic growth increases remittances outflows in Poland. However, such procyclical behavior of remittances yet to be explored.
The results of our VAR-model show that remittances outflows do not affect the inflation rate in Poland. Thus, the immediate result of the shock in remittances outflows is a slight decline in the country inflation rate (-0.0005 %). As well in two quarters there is a small positive growth of inflation gap (0.0004 %). In our opinion, such results can be explained by an effective policy of inflation targeting. Monetary policy conducted by the Polish government turns out to eliminate any influence of remittances outflows on the inflation level in this country.
Similarly to previous results, VAR-model shows a neutral effect of remittances outflows on the interest rates in Poland. Thus, during the two quarters following a sharp increase in remittances interest rate deviation from the equilibrium is negative — 0.005 %. Subsequently, interest rates deviation begins to increase — up to 0.007 %. As in the previous case, in our opinion, such result is a consequence of inflation targeting regime, because the interest rate is one of the main tool of this monetary policy.
The next finding emerging from the simulation results shows that the immediate effect of the shock in remittances outflows is a devaluation of Polish national currency. Deviation of the real effective exchange rate index reduces by 0.003 %. In most cases migrants do not send remittances in zloty but in euros or dollars. Consequently, in order to make the transfer, they exchange currencies. As a result, it increases the demand for euros and dollars. But supply for zloty also increases, which leads to a slight devaluation of the currency. However, in six quarters after the shock in remittances outflows we can observe the reverse strengthening of the zloty (see figure 1).
Summarizing the results of the paper we can distinguish the following effects of remittances outflows on the economy of Poland. First of all, the model confirmed a direct link between the remittances outflows and economic growth of the country. Also our model showed that the outflow of remittances stimulates the devaluation of the currency. The study revealed a neutral effect of the transfers on inflation and interest rates levels, that can be explained by effective implementation of the inflation targeting monetary policy.
In most migrant receiving countries the share of remittances outflows in the financial system is quite small, therefore economic impact of these transfers is not always tangible. But in any case, it is important to create all the necessary conditions for migrants’ easy access to the financial system of the host country. This will reduce the outflow of the currency through the illegal channels and simplify the process of migrants assimilation as new members of the host society.
References:
1. Bilateral migration matrix.//The World Bank. - 2013.//[Electronic resource]. - Available from: htpp://www.econ.world-bank.org.
2. Regional Statistics.//Central Statistical Office in Poland. - 2015.//[Electronic resource]. - Available from: htpp://www. stat.gov.pl.
3. Corbo V Response to external and inflation shocks in a small open economy./V. Corbo, J. Tessaga//General Equlibrium models of the Chilean economy (ed. R. Chumacero and K. Schmidt-Hebbel). - Central Bank of Chile. - 2005. - 29-55 p.
4. Charemza W. A small forward-looking inter-country model (Belarus, Russia and Ukraine)./W. Charemza, S. Makarova, Y. Prytula, J. Raskina, Y. Vymyatnina//INTAS program. - 2008. - 25 p.
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7. Balance of payments manual. Fifth edition (BPM5)./International Monetary Fund. - 1993. - 188 p.
Rubel Oleg Evgrnyevich, Institute of Market Problems and Economic-Ecological Researches of NAS of Ukraine, Senior Researcher E-mail: rubeloleg@gmail.com
Genesis of of neoinstitutional economic theory: analysis and thesaurus
Abstract: The article considers the neo-institutional economics, economic and environmental transaction economics conventions.
Keywords: the Periodic Law, humanities, interdisciplinary approach.
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