Remittances Flow to India and its Impact on Growth: Empirical Evidence from India

Abstract

Over, a long period of time the determinants of economic growth in developing countries have been the subject matter of extensive debate. Conventional drivers of growth have included surplus labour, capital accumulation, technological advancement, foreign aid, foreign direct investment, and investment in human capital, as well as gains from innovation and research and development. The literature has thoroughly explored both the positive and negative impacts of these factors along with recognized the role of institutional variables such as political freedom, political instability, and governance indicators in shaping economic performance. Despite the growing significance of remittances in global capital flows, their direct and indirect effects on economic growth remain relatively underexplored in empirical research. In many developing countries, remittance payments from migrant workers are observed as an increasing magnitude and becoming a significant source of foreign reserve earnings. Remittances inflow is noted to be very useful in promoting household welfare, health and education particularly in developing countries. Inflows of remittances to India have experienced a sharp rise in last three dictates. An important empirical question is whether remittances also contribute to long-term economic growth or not. In this study we have concentrated on the long-run relationship between remittances inflow and the economic growth in case of India considering annual data over the period 1975-2016. For this purpose, we have used Johansen (1988, 1995) cointegration technique and further to assess the short run dynamics of the co-intregrating relationship is estimated by Vector Error Correction model (VECM).