Remittances and competitiveness: a case study on Armenia and Georgia

Remittances play an important role in the economies of remittance-reliant Armenia and Georgia as they alleviate poverty and provide foreign currency. In addition to such positive contributions, remittances can produce harmful effects on the economies that receive them. The author investigates the Dutch disease effect of remittances in these small economies by measuring the impact of remittances on real exchange rates and exports by applying a vector autoregressive model. The study covers the period 2000 Q1–2019 Q4 and analyses the relationship between the remittances, real effective exchange rate, exports, and gross domestic product. The results indicate that remittances produce appreciating effects on real exchange rates in both countries but a week negative effect on exports only in Armenia