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

Jamal Bouoiyour a 2, Refk Selmia, c and Amal Miftahb
a CATT, University of Pau, France b LEDa, University of Paris-Dauphine, France c University of Tunis, Tunisia
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. Keywords: Remittances; economic growth; domestic investment; consumption; Tunisia; Arab Spring.
JEL Codes: F21 ; F22 ; F24; E6 ; O10.

1 Acknowledgement: The content of this paper has been presented at the annual seminar of ESC Pau - IRMAPE / CATT / CREG held on January 21, 2016, the 4th Transitions in Middle East and North Africa (TMENA) meeting on April 2016 in Hammamet-Tunisia and the Development seminar /GETHA LAREFI/LAM held in Bordeaux on March 4, 2016. We are so thankful for all the participants, in particular Christophe Muller, Mouhoub El Mouhoud, Antoine Bouet and Eric Rougier. The authors are also highly indebted to Diaa Noureldin, Kamiar Mohaddes, Magda Kandil, Mahmoud El-Gamal, Hoda Selim, Hany Abdel-Latif, Ghazi Ibrahim-Al Assaf and all the participants to the Macroeconomics session at the ERF 23rd Annual Conference held on March 18-20, 2017 in Amman- Jordan for helpful comments and insightful suggestions. Remaining shortcomings are the responsibility of the authors. 2 Corresponding author: Jamal Bouoiyour; Address: Avenue du Doyen Poplawski, 64000 Pau, France;
Tel: +33 (0) 5 59 40 80 01, Fax: +33 (0) 5 59 40 80 10, E-mail: jamal.bouoiyour@univ-pau.fr.

2

1.     Introduction 
   

On 17 December 2010, a young Tunisian street merchant, Mohamed Bouazizi set himself on fire that ended his life and sparked unrest sweeping in Tunisia. His tragic suicide was seen as an act of despair, humiliation and protest of the explosive problems confronted by the majority of Tunisians who were no longer prepared to accept inequalities, corruption, lack of freedoms, unemployment, etc. The winds of change that swept across Tunisia triggered a “domino” effect in different Arab countries including Egypt, Libya, Syria and Yemen. The term “Arab Spring” has come to present these popular revolutions. In the afternoon of the euphoria of the 2011 protests, Tunisia experienced an evolving volatility and growth slow- moving. Before the downfall of the 23 year-old regime of Ben Ali, Tunisia was one of the widely cited development success stories in the Middle Eastern and North African region, and was portrayed as a “top reformer” as far as institutional reform was concerned (Pollack 2011). Its economic is more prosperous with a growth rate in 2011 projected to exceed 5 percent, outpacing low-middle-income countries’ averages. Thanks to the 1986 structural adjustment program and the macro-economic improvement called ‘economic miracle” beginning in the late 1990s, the country has also succeeded to keep its domestic and external economic imbalances under control. Further, there have been positive advances in education and women rights. However, issues of youth unemployment, corruption, civil and political rights and unequal wealth distribution have received much less attention. In fact, despite a marked economic and educational progress, the social conditions of the Tunisian people have deteriorated, and the corruption and inequalities have reached a very high level. It comes as no surprise that popular uprising occurs in such framework. The Arab Spring has produced immediate negative repercussions on economic development. So, there has a sharp decrease of the annual growth: 1 percent per year between 2011 and 2015. The national economic base suffered. According to the National Institute of Statistics of Tunisia, the foreign direct investment (FDI) plunged by 7.6 percent in 2016 compared to 2010. Also, tourist arrivals and revenues collapsed by 30.8 and 35.1 percent, respectively, and the dinar depreciat

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