IDEAS home Printed from
   My bibliography  Save this article

Remittanceand Trade Deficit Nexus in Nepal: A VECM Approach


  • Guna Raj Bhatta

    () (Nepal Rastra Bank)


Once Nepal eased the access to the international labor market, there is an increasing trend of Nepalese working abroad, where annually thousands of young people migrate from the country. Consequently, there has been a sharp increment of remittance inflow in the recent years. Since remittance helps people improve the living standards, it has been observed as a good contributor for the poverty reduction in Nepal. Nevertheless, it might further deteriorate the trade balance, causing higher demand for consumable goods, most of which are imported in Nepal. Using cointegration techniques and a Vector Error Correction Model (VECM) based on the monthly data of merchandise import, worker's remittance and trade deficit for ten years period, this paper studies whether remittance causes the merchandise import and trade deficit to raise in the long run. The cointegration equation show that there is a long-run positive unidirectional causality from remittance to import as well as remittance to trade deficit implying that remittance causes merchandise import and deteriorates trade balance.

Suggested Citation

  • Guna Raj Bhatta, 2013. "Remittanceand Trade Deficit Nexus in Nepal: A VECM Approach," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 25(1), pages 37-50, April.
  • Handle: RePEc:nrb:journl:v:25:y:2013:i:1:p:37-50

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Satis Chandra Devkota, 2004. "Impact of Exchange Rate Change on Foreign Trade Balance in Nepal," International Trade 0410003, EconWPA.
    2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:kqi:journl:2017-1-6 is not listed on IDEAS
    2. Mohammad Reza Farzanegan & Sherif Maher Hassan, 2016. "How does the Flow of Remittances Affect the Trade Balance of the Middle East and North Africa?," CESifo Working Paper Series 6172, CESifo Group Munich.

    More about this item


    Trade deficit; Remittance; Nepal; Import; VECM;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nrb:journl:v:25:y:2013:i:1:p:37-50. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Bishnu Prasad Gautam). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.