Transcript Class 17 Lecture notes (to be posted after class)

How Remittances solve the
Unholy Trinity
Singer, David Andrew. 2010. Migrant Remittances and
Exchange Rate Regimes in the Developing World.
American Political Science Review 104 (2): 307-323.
1
Cohen, et al.
2
Wei
3
Ippolito
4
5
Carrasco
Plan for today
1. Why emigrate? Remittances
2. Countercyclical
3. Fixed Exchange Rate (Fixed XR)
4. A Triangle
• Will change the way you see international political
economy!
5. Testing the argument
6. How to read statistical results -- a cheat sheet
6
Previously in class:
• Who is against immigration?
• Answer:
– People who face job competition from immigrants
– The scarce factor of production
– (Also: cultural values matter)
• This class: Why are the immigrants here?
7
Remittances!
• A lifeline for poor countries
• A sizeable share of GDP
• >15% of GDP for:
– El Salvador
– Haiti
– Honduras
– Jordan
• >5% of GDP for 42 countries in 2004.
• Global flows: $318 billion in 2007
• > other important external financial sources (ODA, bank
lending, private investment)
8
Remittances in film:
9
3 films where Chinese immigration plays a role:
Chinese
immigrants in
Barcelona
Chinese (and
other Asian)
migration to
the United
States
Scarface…
Asian-style!
Chinese
immigrants in
Japan
10
Why <3 remittances?
• Unrequited
– Don’t have to pay them back
– No obligations
• Cannot be withdrawn
– No capital flight
• Most importantly for this lesson…
• …
• COUNTERCYCLICAL!!!
11
Countercyclical
• When times are good back home, migrants send less
money
• But when times are hard, migrants send more money
• Example: If a natural disaster hits, migrants send more
money home in a hurry!
• BUT – what if the value of what you send home keeps
varying?
•  uncertainty
• Maybe migrants send less $$$ under uncertainty
• (Maybe the value of what they send drops)
• Solution:
– FIXED EXCHANGE RATES (XR)
12
Fixed XR
• Provides certainty for international
exchanges
– trade & financial exchanges
• But it comes at a cost:
– Monetary policy
• And now…
– A TRIANGLE
13
Free Capital Flow
Inconsistent/Unholy
Trinity
Or
“Trilemma”:
a country can only have 2 out of
3 of these
Fixed Exchange Rate
Sovereign Monetary Policy
14
Fixed Exchange Rate
Open Capital Flows
Sovereign Monetary Policy
Trilemma
Singer’s Argument about how remittances mitigate the
problem of the trilemma
• In an open-economy, fixed XR takes away monetary
policy autonomy
• Without monetary policy autonomy, governments cannot
take countercyclical measures against (alternatively)
– unemployment
– inflation
• But remittances flow counter-cyclically!
• Fixed XR help bring in remittances***
• Remittances address cyclic problems of
unemployment/inflation!
16
Test the argument!
(Side note:
Do fixed exchange rates lead to
more remittances?
Essay topic!)
17
18
19
A simple guide to
How to read basic “regression” results
1.
What is the analysis “explaining”?
Dependent variable, usually in the title of the table
2.
What is the unit of analysis?
How many observations… of what?
(In IPE studies, often “country-years”)
3.
What are the independent variables of interest?
Main independent variable(s), Control variables
4.
What is the effect of each independent (explanatory) variable?
Just ask: Is the “coefficient” positive/negative?
5.
Are the effects statistically significant?
a.
b.
c.
d.
Star-gazing *, **, ***
Is the standard error <1/2 the size of the coefficient?
OR: is the t-stat/z-stat >1.96?
OR: is the p-value<0.05?
20
21
22
Check list:
1.
What is the dependent variable (the thing we want to explain –
usually in the table’s title)?
2.
What is the unit of analysis (the nature of the observations)?
3.
What are the independent variables of interest?
•
Main independent variable(s)
•
Control variables
4.
What are their effects? Just look for “positive” or “negative”
COEFFICIENTS (especially if the model is non-linear)
 Is the model linear or non-linear?
5.
Statistical significance: How confident are we in each effect?
3 ways to report: (star gazing)
•
Standard error: 95% significant if < ½ the size of the
coefficient… really <1/1.96)
•
T-stat (or Z-stat): 95% significant if >1.96
•
p-value: 95% significant if < 0.05
23
24
Instrumental variable approach?
• What if people are more likely to send $$$ home if the XR is fixed?
• Argument is:
Remittances  Fixed XR
• But it might really be:
Fixed XR  Remittances
• Possible “endogeneity” !
– (Or mutual causation)
• To test this, we can perform a quasi-experiment
• Find something correlated with remittances, but not directly related with
the XR
– E.g., Emigration rates
• Emigration  Remittances
• But no direct relationship between emigration and XR
– (You could challenge this)
• So any relationship between emigration and XR captures the effect of
25
remittances on XR, removing possible “endogeneity.”
26
Take-aways
• Why emigrate? Remittances
• Countercyclical
• Fixed Exchange Rate (Fixed XR) –vs- Floating XR
• The Unholy Trinity / Inconsistent trinity / TRILEMMA
• How to read statistical results -- a cheat sheet
• (Instrument / Instrumental Variable)
27
28
29
Thank you
30