Impact of Remittances on the Real Effective Exchange Rate in Tunisia

Remittances to Tunisia constitute a main foreign flow; they have increased rapidly particularly over the past decade. Remittances can induce the syndrome known as Dutch Disease. The aim of this study is to analyse the impact of remittances on the real effective exchange rate. By estimating cointegration relations with structural breaks through the method of Johansen et al. (); Saikkonen and Lutkepohl () and Saikkonen et al. (); we found that an increase in worker's remittances of 1 percentage point of GDP is associated with an appreciation of Tunisia's real effective exchange rate by 0.39 per cent. This result confirms the hypothesis of Dutch Disease in Tunisia.