Effects of Workers' Remittances and its Volatility on Economic Growth in South Asia |
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| Authors: | Syed Tehseen Jawaid Syed Ali Raza |
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| Affiliation: | IQRA University, Karachi, Pakistan |
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| Abstract: | This study investigates the effect of workers' remittances and its volatility on economic growth of five South Asian countries by employing long time series data from 1975 to 2009. Cointegration results confirm a significant positive long run relationship between remittances and economic growth in India, Bangladesh, Sri Lanka and Nepal, but a significant negative relationship in Pakistan. Conversely, the volatility of workers' remittances has a negative and significant effect on economic growth in Pakistan, Indian, Bangladesh and Sri Lanka, but a negative but insignificant impact in Nepal. All sensitivity analyses confirm that the results are robust. A less volatile inflow of workers' remittances is growth‐enhancing for all countries. It is suggested that policy makers should make policies to reduce the transaction cost to welcome remittances into the region. Furthermore, countries like Pakistan should make the policies to discourage voluntary unemployment. Policy Implications - This study show the positive effect of remittances on economic growth in India, Bangladesh, Sri‐Lanka and Nepal. These countries should create friendly policies to reduce the transaction cost to ensure the continuous inflows of workers' remittances.
- Results indicate a negative effect of remittances on economic growth in Pakistan. Remittances are considered an uninterrupted source of income, which may increase voluntary unemployment, leading to decreased economic growth. The government should make policies to discourage this voluntary unemployment.
- Policymakers should create effective systems to ensure this inflow comes through formal financial channels for better control.
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