Examining the Impact of Remittances on Economic Growth in South Asian Countries

Document Type : Research Paper

Authors

1 PhD student, Department of Economics, University of Semnan, Semnan, Iran

2 Associate Professor, Department of Economics, University of Semnan, Semnan, Iran

3 Professor, Department of economics, University of Semnan, Semnan, Iran

Abstract

A significant portion of the labor force in developing South Asian countries migrates abroad in search of employment. These countries receive substantial annual remittance amounts. The flow of remittances has a notable economic impact on the countries of origin. This study aims to examine the effects of remittances on economic growth in South Asian countries using annual data from 2007 to 2022, applying a panel data modeling approach. Based on the results of the F-Limer test, a fixed-effects model was selected, and the Hausman test further confirmed the appropriateness of this specification. The findings suggest that remittances have a statistically significant negative impact on economic growth in the region. According to the research literature, the negative impact of remittances on economic growth in South Asian countries is attributed to brain drain and a reduction in the labor force, currency appreciation, decreased economic competitiveness, increased consumption expenditures, and higher imports. The effects of other control variables—including domestic investment, human capital investment, infrastructure development, control and prevention of financial and administrative corruption, and foreign direct investment—on economic growth have also been examined and analyzed. The regression model estimates indicate that domestic investment, human capital investment, and infrastructure development have a positive and statistically significant effect on economic growth. Based on the findings, a combination of policies is recommended, including directing remittances towards production, investing in education and infrastructure, and combating corruption. Such measures could transform the vicious cycle of migration and negative economic growth into a virtuous cycle of job creation, investment attraction, and sustainable development.

Keywords

Main Subjects

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