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COVID-19 Pandemic, International Remittances and Economic Growth in Kerala: A Macroeconomic Analysis

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  • G, Murugan
  • k, Pushpangadan

Abstract

The paper develops a methodology for impact analysis of Coronavirus 2019 (COVID-19) pandemic based on Solow’s growth theory for a migration-driven subnational economy by a case study of Kerala, India. A log-linear growth equation of output per capita is regressed on capital stock-gross domestic product ratio (CSDR) and real remittances per capita (RRPC) for the period, 1980-2015. The robust regression on regional growth shows that the growth elasticity of CSDR is 0.43 and that of RRPC 0.28 with an explanatory power of 95 %. From growth accounting principle, only 29 % of the remaining variation needs to be accounted by other factors affecting regional growth. The impact of remittances on growth rate of the economy is positive and statistically significant at 1 % level as against the negative and statistically significant relationship observed in majority of cross-country analysis. The gross state domestic product (GSDP) for the year 2020/21 using national accounting framework incorporating unorganised economic activities shows a reduction of 38.85% from the pandemic impact in the region. The corresponding shrinkage of investment share in GSDP is 24. 5 % from its trend value of 0.63 in 2020/21.This alone reduces the growth rate of output per capita by 10.5 %. Similarly, the reduction in trend value of RRPC is 43.1 % and its impact on growth rate of output per capita is a shrinkage of 12.1 %. The impact of COVID19 on the overall growth rate of output per capita in the economy is- 22.6 %, the sum of the separate effects. It is interesting to note that reduction in growth rate is more from international remittances than from the share of investment in GSDP. Therefore, growthrevival strategy for the region requires special component plan compensating for the shortfall in the international remittances.

Suggested Citation

  • G, Murugan & k, Pushpangadan, 2021. "COVID-19 Pandemic, International Remittances and Economic Growth in Kerala: A Macroeconomic Analysis," MPRA Paper 107501, University Library of Munich, Germany, revised 28 Apr 2021.
    • Handle: RePEc:pra:mprapa:107501
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    References listed on IDEAS

    as
    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    2. K. P. Kannan & K. S. Hari, 2020. "Revisiting Kerala’s Gulf Connection: Half a Century of Emigration, Remittances and Their Macroeconomic Impact, 1972–2020," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(4), pages 941-967, December.
    3. K. Pushpangadan, 2003. "Remittances, consumption and economic growth in Kerala: 1980-2000," Centre for Development Studies, Trivendrum Working Papers 343, Centre for Development Studies, Trivendrum, India.
    4. Richard Adams, 2011. "Evaluating the Economic Impact of International Remittances On Developing Countries Using Household Surveys: A Literature Review," Journal of Development Studies, Taylor & Francis Journals, vol. 47(6), pages 809-828.
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    More about this item

    Keywords

    COVID-19; Solow’s growth model; investment-gross domestic ratio; international remittances and Growth accounting.;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other

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