The role of remittances and FDI in Promoting Economic Growth in South Asia: A Dynamic Panel Data Approach

Abstract

This study examines the impact of remittances and foreign direct investment (FDI) on economic growth in South Asian countries using panel data spanning 1994 to 2023. To analyze the relationship between these variables, we employ a range of econometric techniques, including the cross-sectional dependency test, LLC and IPS unit root tests, Johansen Fisher-type co-integration test, and the Vector Error Correction Model (VECM). The empirical findings indicate that remittances and exports contribute positively to long-term GDP growth in the region. However, FDI demonstrates a negative and statistically significant impact on GDP in both the short and long run. Additionally, a bidirectional short-run Granger causality exists between FDI and GDP, whereas remittances exhibit a unidirectional causality toward GDP growth, No causality was found between exports and GDP. In suggestion, the South Asian economies, emphasise the need for strategic migration policies and reforms to enhance remittance inflows. Future research could investigate the impact of remittances on other macroeconomic indicators across different economies and explore how financial development and varying types of remittances influence economic growth.