Remittances and environment quality: Asymmetric evidence from South Asia

Abstract

Remittances are the largest sources of foreign funds and are critical for economic development in South Asia. However, they have been found to damage the environment by promoting the production and consumption of energy-intensive products and pose challenges for achieving Sustainable Development Goals (SDGs). Against this backdrop, this study examines the role of remittances in environmental degradation using a sample of five South Asian countries from 1990 to 2021. A non-linear multivariate panel ARDL (NARDL) model is applied to investigate the asymmetric long and short-run relationship between the two. Cointegration results suggest that there is a stable long-run relationship among the variables. Empirical findings indicate that positive remittance shocks impact environmental degradation, and adverse shocks have a favourable effect. The causality results show one-way causality from positive and negative shocks to environmental quality, supporting the asymmetric relationship. The control variables, such as trade, financial development, and energy consumption, exacerbate environmental degradation while FDI improves the environmental quality. For robustness, the study uses Ecological Footprints (EPF) as an alternative proxy for environmental quality and confirms the asymmetric long and short-run link between remittances and environmental quality. Based on the results, an integrated approach combining the development and environmental goals is recommended.