Workers' remittances and economic growth in China and Korea: an empirical analysis

Abstract

PurposeThis purpose of this paper is to investigate the relationship between workers' remittances and economic growth in China and Korea.Design/methodology/approachThis paper has employed annual time series data over the period of 1980 to 2009. Johansen and Jeuuselius's cointegration technique, error correction model, and sensitivity analysis have been performed to analyze the long‐run, short‐run relationships and robustness of the results, respectively.FindingsCointegration results confirm that there exists significant positive long‐run relationship between remittances and economic growth in Korea, while, significant negative relationship exist between remittances and economic growth in China. Error correction model confirms the significant positive short‐run relationship of workers' remittances with economic growth in Korea, while the results of China were insignificant in short run. Causality analysis confirms unidirectional causality runs from workers' remittances to economic growth, in both China and Korea. Sensitivity analysis confirms that the results are robust.Practical implicationsIt is suggested that Korea should form friendly policies to ensure the continuous inflows of workers' remittances and their efficient utilization to ensure economic growth. On the other hand, China should keep an eye to reducing voluntary unemployment, which leads to decrease in productivity and growth in the country.Originality/valueThe paper provides some empirical evidence of whether workers' remittances have contributed significantly to large open economies.