Remittances-inflation nexus in South Asia: an empirical examination

Abstract

PurposeThe purpose of this paper is to examine whether remittances induce inflation in South Asian countries, namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka.Design/methodology/approachThis study uses panel cointegration and Pooled Mean Group techniques covering from 1975 to 2017 to estimate the long-run and the short-run effect of remittances on inflation.FindingsThe estimated results suggest that the inflationary impact of remittances in South Asia depends on the time length. The inflow tends to lower inflation in the short run, whereas it increases in the long run. The findings highlight the regional peculiarity in the impact of remittances on the price level. The results are statistically significant and are confirmed by the Mean Group estimation as well.Originality/valueMost past studies investigating the nexus between remittances and inflation in the South Asian context examine either these countries individually or include them all in a pool of big cross-sections. This study contributes to the literature by addressing this void. The South Asian countries should not generalize the earlier findings on the link between remittance inflows and inflation, as the short-run effect is different from the long run. Thus, these countries would be better off designing long-run policies that are different from the short run.