Remittance Inflow and GDP Growth: Evidence from Bangladesh, India and Pakistan

Abstract

This paper examines the impact of remittance on economic growth. In this study, we utilize the secondary time series data for the span of 1981-2015 in case of Bangladesh, India, and Pakistan. The study uses Augmented Dickey-fuller (ADF) test to check whether a series suffers from a unit root problem and Granger causality Test under the Vector Autoregressive Regression (VAR) framework to check the causal link. The Johansen Cointegration test is employed to check whether the long-run relationship or equilibrium exists between the time series variable. By using ADF test we find that the series is stationary in the first difference of the original series. The Granger causality establishes that remittances lead to economic growth while economic growth does not lead to remittances flow in Bangladesh that means there is a one-way causal relationship between the two variables running from remittances to economic growth. The study finds a bi-directional significant link between remittances and economic growth in India which means a two-way directional causality, indicating that remittances flow leads to economic growth and the economic growth also facilitates flow in remittances. However, there is only a one-way causal relationship in Pakistan where economic growth leads to remittance growth. The result of Johansen co-integration shows that there is a long run relationship among the variables.