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Using disaggregated sartorial data, this study shows that rising levels of remittances have spending effects that lead to real exchange rate appreciation and resource movement effects that favor the non-tradable sector at the expense of tradable goods production. These characteristics are two aspects of the phenomenon known as Dutch disease. The results further indicate that these effects operate more strongly under fixed nominal exchange rate regimes. This study has shown that rising levels of remittances in emerging economies can have an important spending effect that culminates in an increase in the relative price of non-tradables and real exchange rate appreciation. The results also indicate that a resource movement effect that favors the non-tradable sector at the expense of tradable goods follows an increase in remittances.
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