Exploring the asymmetric effect of remittance inflows on gold import demand: Evidence from a large gold-consuming and remittance-receiving country

Abstract

The focus of this research is to look at how remittance inflows affect gold imports in India for the period from 1980 to 2020. The study uses both the linear (symmetric) autoregressive distributed lag (ARDL) model of Pesaran et al. (2001) and the non-linear (asymmetric) autoregressive distributed lag (NARDL) model of Shin et al. (2014) to assess the symmetric and asymmetric impact of remittance inflows on gold imports. The key advantage of the NARDL model relies on its ability to simultaneously capture the short run and long run asymmetries through the positive and negative partial sum decompositions of changes in the independent variable(s). The results of linear ARDL model reveal that remittance inflows positively and significantly affect the gold imports in the long run, although negatively and significantly in the short run. The findings of NARDL model, on the other hand, show that there is significant asymmetric impact of remittance inflows upon the gold imports over the study period. The results confirm that whereas an increase in remittance inflows leads to a considerable increase in gold imports, a reduction in remittance inflows has no substantial impact in the long run. Another notable outcome is that, while a decline in gold prices boosts gold imports in the short run, both an increase and a decrease in gold prices enhance gold imports in the long run. Concerning the results of our study, it is suggested that more efficient channelization of remittance revenues and adoption of non-price measures may be deemed effective to curb the gold imports, which can contribute to reduce unfavourable trade balance.