Remittances inflow and private investment: a case study of South Asian economies via panel data analysis

Zeeshan Khan,Fazli Rabbi,Manzoor Ahmad,Yang Siqun

doi:10.1080/1331677x.2019.1655464

Abstract

This study examines the association between remittances inflow and investment. The data of five major South Asian countries that receive a significant portion of remittances including India, Sri Lanka, Pakistan, Nepal, and Bangladesh are considered from 1990 to 2016. Pooled ordinary least square (OLS), the fixed effect within group estimator (FEWGE), fixed effect (FE) and random effect (RE) are used for the analysis of the data. Unit root tests were employed and then followed by a pooled mean group (PMG) analysis to analyse the long-run relationship between private investment and remittances while controlling for several other variables, such as real-interest rate, economic growth, and the interaction between remittances inflow and business freedom. We use the error correction mechanism (ECM) to find the short-run relationship among variables. Our findings reveal that private investment is positively affected by remittances inflow. Moreover, remittances flow with low business freedom opposes the positive association in the case of these sampled countries. We recommend channelising remittances and lower barriers to business freedom, which may pave the way for a conducive investment-friendly environment.

Highlights

The global migration of nearly 250 million people is a key factor affecting the economies of developing countries via different channels
The results show that both remittances inflow and economic growth in case of pooled ordinary least square (OLS), fixed effect within group estimator (FEWGE), fixed effect (FE) and random effect (RE) positively and statistically significantly affect private investment for Pakistan, Sri Lanka, Nepal, India, and Bangladesh
The long-run results given in Table 7 correspond to the previous reported results of Okodua and Olayiwola (2013), Griffith et al (2008), Malik (2013), Le (2011), Das (2009), Thagunna and Acharya (2013), Yasmeen et al (2011), Mehra and Singh (2014), Akter (2016), and Cherono (2013) who stated that remittances inflow positively affects private investment as well as education, health care, and other spendings; recipient households devote remittances to investment

Summary

Introduction

The global migration of nearly 250 million people is a key factor affecting the economies of developing countries via different channels. A recent report by The Global Knowledge Partnership on Migration and Development (KNOMAD) (2017) found that remittances are a critical macroeconomic variable that contributes 596 billion dollars to the global economy, of which 450 billion flows to developing or underdeveloping economies. The flow of remittances is larger than private capital inflow and official Z.

Objectives

Methods

Results

Discussion

Conclusion