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

If Tunisia is hailed as a success story with its high rankings on economic, educational, and other indicators relative to other Arab countries, the popular 2011 uprisings underscored the fragility of its main economic pillars, including those of tourism and foreign direct investment. This paper examines the economic impact of migrants' remittances, which are expected to exhibit relatively countercyclical behaviour during periods of intense upheaval. This study is novel in its methodological approach, which is used to pinpoint the dynamic effects of remittances on key macroeconomic variables within an unstable framework. The analysis reveals that the effect of remittances on Tunisia's economy has varied over time. Prior to the Arab Spring, remittances had a short-term negative influence on economic growth, varying effects on domestic investment and positive impacts on consumption. In considering the post-Arab uprisings, positive and strong impacts of remittances on growth and consumption are found in the long run while negative and moderate investment effects of remittances are shown over the short and medium term.