Do Workersʹʹ Remittances Matter for the Egyptian Economy?

Abstract Workers’ remittances constitute one of the most important sources of external finance for many developing countries. Although it shows a decreasing trend in recent years, Egypt after 1970s with her regular and massive labor migration to abroad has been still one of the gainer countries on remittances across the world. Empirical studies that implemented for various countries reveal workers’ remittances may have increasing, decreasing or neutral effects on economic growth and other macroeconomic variables. The current study aims at investigating the impact of workers’ remittances on the major macroeconomic variables in the Egyptian economy during the period (1991-2011) by employing Cointegration, Error Correction Model and Granger Causality techniques. The main findings show the existence of cointegration between workersʹ remittances and the macroeconomic variables; also there are unidirectional causality runs from workersʹ remittances to private capital formation, total exports, total imports, money supply and exchange rate, while there is bidirectional causality between workersʹ remittances and each of private consumption, government spending, and economic growth. The study suggests that the Egyptian management authorities need to formulate appropriate conducive polices for encouraging Egyptian migrants to hold savings in financial assets in Egypt rather than abroad (or spending their savings on consumer goods); and redirecting remittances to official channels, Facilitating investment opportunities to migrants for self-employment and enterprise creation in Egypt, and using remittances in a way that generates a maximum developmental impact of remittances in Egypt.