Abstract: Remittances are considered as one of the important sources of the foreign currency earnings in a country as it has significant importance in terms of minimizing the issues related to the Balance of Payment (BOP) thereby improving the external position of a country.
This study examines the impact of remittances on the economic growth in Sri Lanka by employing the annual data from the period 1975 to 2021. The study was motivated by the conflicts stimulated from the literature on remittances role in GDP in other countries. With the current financial situation in Sri Lanka, identifying the impact of remittances and provide a considerable perception to policy makers to reinforce adapt policies and regulations to entice remittances inwards.
The analysis mainly based on the multivariate regression analysis and the cointegrated test is carried out to determine whether the variables have long run relationship. The test results confirmed that the variables have a long run relationship. Therefore, the Vector Error Correction (Ɛt-1) is added to the short-run model and coefficient value of the error term is estimated to determine the speed of adjustment towards the long run equilibrium. The empirical analysis is mainly based on the estimating long -run model for the log variables and the short-run model with error correction term. The estimated results suggest that in the short run and long run remittances have a significant effect on countries’ GDP. Accordingly, effects of, Government Expenditure, Exchange rate and Household expenditure are also verified by the regression and the derived model.
In the long run, a 1% increase in remittances can make 1.02% increase in GDP whereas government expenditure and household consumption also affect GDP growth positively. Nevertheless, the exchange rate has a negative impact on GDP.
As per the derived shot run model, 1% increase in remittances can cause 0.17% growth in GDP whereas household consumption also affect positively. However, increase in exchange rate and government expenditure may cause negative effects on GDP growth.
Keywords: Economic Growth, Worker Remittances, GDP growth.
Title: NEXUS OF ECONOMIC GROWTH AND WORKER REMITTANCES; IN CASE OF SRI LANKA
Author: Hansini Silva
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Vol. 10, Issue 2, October 2022 - March 2023
Page No: 275-293
Research Publish Journals
Website: www.researchpublish.com
Published Date: 22-December-2022
