Relationship between Remittances and Macroeconomic Variables in Times of Political and Social Upheaval: Evidence from Tunisia's Arab Spring

TL;DR

This paper investigates how migrant remittances affected Tunisia's economy during the Arab Spring, revealing short-term negative impacts on investment but long-term positive effects on growth and consumption.

Contribution

It provides new insights into the dynamic effects of remittances on macroeconomic variables during political upheaval periods in Tunisia.

Findings

Remittances negatively impacted investment short-term.

Remittances positively influenced growth and consumption long-term.

Impact on investment weakened during the Arab Spring period.

Abstract

If Tunisia was hailed as a success story with its high rankings on economic, educational, and other indicators compared to other Arab countries, the 2011 popular uprisings demonstrate the need for political reforms but also major economic reforms. The Arab spring highlights the fragility of its main economic pillars including the tourism and the foreign direct investment. In such turbulent times, the paper examines the economic impact of migrant' remittances, expected to have a countercyclical behavior. Our results reveal that prior to the Arab Spring, the impacts of remittances on growth and consumption seem negative and positive respectively, while they varyingly influence local investment. These three relationships held in the short-run. By considering the period surrounding the 2011 uprisings, the investment effect of remittances becomes negative and weak in the short-and medium-run, whereas positive and strong remittances' impacts on growth and consumption are found in the long term.