Application of ARIMA model in forecasting remittance inflows: evidence from Yemen

The international community has exhibited growing apprehension regarding the rehabilitation of nations grappling with post-conflict and crisis situations, as exemplified by the case of Yemen. Prolonged unemployment, deficient state and local institutions, and the susceptibility of certain segments of Yemen’s population to the impacts of conflict and disaster have persisted over an extended period, necessitating ongoing external assistance. Nevertheless, international aid frequently proves inadequate and is contingent upon the fulfilment of specific prerequisites. Consequently, the escalating significance of migrant remittances has become evident in supporting individuals and communities affected by conflicts and catastrophes, enabling their survival. To shed light on this dynamic, this study utilizes time series data on remittance inflows to Yemen spanning the years 2000–2019, sourced from the World Bank database (World Bank, World Bank Open Data | Data. World Bank Database. https://data.worldbank.org , 2022a). Employing the Box-Jenkins ARIMA technique, the analysis seeks to forecast remittance inflows for the period 2020–2026. This method incorporates past values of the selected variable, the degree of integration, and previous error term values to project future values. Additionally, the study employs a unit root test to assess series stationarity, generates correlograms to identify the optimal ARIMA model for forecasting, and utilizes diagnostic tests such as the Ljung-Box Q test and ARMA process to verify the predictive capability and robustness of the model. The study's outcomes reveal a projected increase in remittance inflows over the next 6 years, ultimately reaching 36.83% of the country's gross domestic product. These remittances not only serve as a crucial financial lifeline but also empower families to make economic advancements and fortify social services, particularly during transitions from war to peace. The pivotal role played by remittances in fostering economic progress and reinforcing social services during such transitional phases offers policymakers valuable insights for formulating effective reconstruction strategies.