Do personal remittances influence economic growth in South Asia? A panel analysis

• Published date: 01 February 2022
• Author: Md. Saiful Islam
• Date: 01 February 2022
• DOI: http://doi.org/10.1111/rode.12842

242 

|

     wileyonlinelibrary.com/journal/rode  Rev Dev Econ. 2022;26:242–258.

© 2021 John Wiley & Sons Ltd

Received: 8 March 2021 

|

  Revised: 2 August 2021 

|

  Accepted: 30 September 2021

DOI: 10.1111/rode.12842  

REGULAR ARTICLE

Do personal remittances influence economic

growth in South Asia? A panel analysis

Md. SaifulIslam

Department of Economics and Finance, 

College of Business Administration, 

University of Hail, Hail, Saudi Arabia

Correspondence

Md. Saiful Islam, Department of 

Economics and Finance, College of 

Business Administration, University of 

Hail, Hail, Saudi Arabia.

Email: saifecon@yahoo.com; ms.islam@

uoh.edu.sa

Funding information

There is no funding

Abstract

This  paper  investigates  the  remittance  and  economic 

growth relationship  using annual  panel data  for the  pe-

riod 1986– 2019 on selected South Asian economies with 

trade openness (TOP) and foreign direct investment (FDI) 

inflow as  control variables.  The  cross- sectional depend-

ency test,  second- generation  panel  unit  root test, panel 

generalized least  square (GLS),  panel fully  modified  or-

dinary least  squares  (FMOLS),  and  Dumitrescu– Hurlin 

(D– H) panel causality  tests are  employed to accomplish 

the study. Both the GLS and  FMOLS estimations ensure 

the positive  impact  of  remittance  on  economic growth. 

The  D– H causality  test  discloses  unidirectional  causal-

ity from  remittances  to  economic  growth.  The  findings 

suggest that South Asian economies may strive to attract 

more  remittances,  through  augmenting  international 

migration,  enabling  migration- friendly  policy  and  re-

gimes, creating training and support facilities at different 

levels  for  international  migrants,  diversifying  exports, 

and being selective  to FDI  inflows, which  will take care 

of economic growth in the region.

KEYWORDS

economic growth, foreign direct investment, remittances, South 

Asia, trade openness

JEL CLASSIFICATION

F24; F30; F41; O1; O53

|

243

ISLAM



|

INTRODUCTION

Personal remittances by  international migrants  have become a  steadily increasing source of  fi-

nance for economic growth in many developing countries. Compared to several other sources of 

external finance such as foreign direct investment (FDI) and capital market inflows, remittances 

are risk- free  and  require no  repayment.  Thus,  personal remittances  by  international  migrants 

and emigrants to their home countries constitute an important source of capital to finance huge 

development efforts in developing  countries. Despite the important  role of  remittance in devel-

opment finance, its effect on economic development is not well researched. The amount of remit-

tance inflow depends  on the migrants’  ability such as  length of  migration and their  motivation 

to remit savings back  to the home  country. The motivation to remit relates  with the family  size 

of migrants back  home and network  effects. The motivation to  remit mainly includes  altruism, 

self- interest such as personal saving target, and portfolio management decision (OECD,2006).

The size of global  remittances amounted to $689 billion in 2018,  in which the selected coun-

tries of South Asia, India, Pakistan, and Bangladesh, accounted for US$78.6, US$21, and US$15.5 

billion with  first,  seventh,  and ninth  positions  in  the world,  respectively  (McCarthy,2020). In 

2019, the estimated  remittance received by South  Asia was US$140  billion, which amounted  to 

19.61% of  the world  remittances (US$714 billion)  and accounted  for a  6.1% growth  rate (Ratha 

etal.,2020).  At the  country level,  the volume of  remittances  as a percentage of  gross domestic 

product (GDP)  increased  over  the  years,  as  shown in  Figure 1.  In  2019,  personal  remittances 

amounted to  8.03%, 8.00%,  6.07%,  and 2.90%  of  GDP for  Sri  Lanka, Pakistan,  Bangladesh, and 

India, respectively (World Bank,2020). India, Bangladesh, and Pakistan are selected in this study 

because they are among the  top 10 remittance- receiving countries in the  world. Sri Lanka is se-

lected because the remittances it receives in terms of percentage of GDP are even better than the 

other three countries (Figure1).

Table1 presents  the  detailed absolute  values  of  remittances of  selected  countries  in billion 

U.S. dollars at 2010 constant prices. The volume of remittances in all four countries has increased 

in absolute values and  remained stable over  the years. In  South Asia,  there are eight countries; 

the three countries are among the top 10 remittance- receiving countries in the world. A research 

question  arises,  “do  these  huge  remittances contribute  positively  to  the  economic  growth  of  

remittance- receiving countries?”  Therefore,  this  study  aims  at  examining  the  remittance  and 

economic  growth  relationship  in  four  South  Asian  economies,  namely  Sri  Lanka,  Pakistan, 

Bangladesh, and India.

FIGURE  Remittances as a percentage of GDP. Source: World Bank (2020) [Colour figure can be viewed at 

wileyonlinelibrary.com]

          













%*' ,1' 3$. /.$