# _How do the data look like?_

We now move beyond the theoretical considerations just discussed and focus on the data. Table 1 reports the (annualized) change in the (log) real exchange between 1990 and 2003 for a number of Latin American countries, together with the initial and final levels of remittances (in percent of GDP). The remittances data are those of Aggarwal, Demirguc-Kunt, and Martinez Peria (2005). The real effective exchange rate is from the IMF’s _International Financial Statistics_ and it is defined as the relative price of domestic to foreign goods, so that increases imply a real exchange rate appreciation. Table 1 indicates that over 1990 and 2003 the real effective exchange rate appreciated in 11 of the 20 countries under consideration. The countries where it appreciated the most are Belize, Ecuador, El Salvador, Guatemala, and Haiti. Interestingly, Ecuador, El Salvador, Guatemala, and Haiti are among the top receiver countries of remittances of the region (as percentage of GDP). Other countries where the real effective exchange rate appreciated over the period under consideration by at least 1 percent per year on an annual basis are Honduras, Jamaica and Mexico. The first 2 of those are also among the countries of the region with a high remittance to GDP ratio, whereas Mexico is the country with the larger remittances flows of the world.

Figure 1 presents similar information but now restricting the sample to the 8 Latin American countries with the largest remittances to GDP ratio in 2002. Even though we should stress that this figure can only provide evidence of unconditional correlations, it is suggestive of a positive relationship between the evolution of remittances and the real effective exchange rate. In fact in most of the 8 countries in the figure it is possible to observe a real exchange rate appreciation in parallel to an increase in the remittances to GDP ratio. The first apparent exception to this rule would be Nicaragua, where the evolution of the real exchange rate over the early 1990s and 2000s appears to move in the opposite direction to what one could expect. The second exceptions are given by Ecuador and the Dominican Republic, where marked real depreciations followed the crisis of 1999 and 2002, respectively, at a time when remittances were increasing substantially. However, in the case of the Dominican Republic the real exchange rate and the remittances to GDP ratio also moved in parallel before 2002.

Note also that in some of the other countries the observed real exchange rate appreciations have been quite dramatic. For example in Ecuador, El Salvador, Guatemala, and Haiti, over the 1990-2003 period the real exchange rate appreciated by about 40 percent. In the cases of Honduras and Jamaica the recorded appreciation is more modest but it would still be in the 20 percent range.

In Figure 2 we now compare the evolution of the real exchange and the volume of exports of good and services. The figure indicates that the only countries where export volumes have significantly increased over the 1990-2003 period are El Salvador, a country where exports increased from about 19 percent of GDP in 1990 to close to 30 percent in 2003, and Ecuador where exports increased by almost 20 percentage points to close to 55 percent of GDP. In Honduras, and Nicaragua export volumes would have been more or less stable over this period oscillating between 30 and 40 percent of GDP in the case of Honduras and hovering around 25 8