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Do remittances impact the economy? Some empirical evidences from a developing economy

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  • Hrushikesh Mallick

    () (Centre for Development Studies)

Abstract

The study attempts to examine the impact of remittances on macroeconomic activities (private consumption and investment) and its implications on economic growth in India for the period from 1966-67 to 2003-04. Estimating a general consumption model, the results indicate that remittances along with debt, money supply (net of bank demand deposits) and income, consistently have a positive influence on private consumption. This suggests that as usually the case for a developing economy, the effect of remittances is not different from that of income indicating income effect of remittances. The result also implies that government debt is perceived as net wealth by the private sector. With the increase in public debt, private sector perceives that their wealth is also getting increased and as a result they tend to spend more on consumption ignoring its implications in terms of future tax burden that they have to incur. Further, examining the impact of remittances on private investment and output growth, the study finds that although remittances do adversely affect private investment but the growth rate of remittances do not influence on the growth rate of output in the economy. This is something quite puzzling. However, on the basis of no growth effect of remittances, the study suggests that the government policy should be designed towards inducing the private sector to allocate more for productive investments for leveling up the rate of growth. Otherwise significant a proportion of remittances would result in increases in private consumption without any contributory impact on the economy.

Suggested Citation

  • Hrushikesh Mallick, 2008. "Do remittances impact the economy? Some empirical evidences from a developing economy," Centre for Development Studies, Trivendrum Working Papers 407, Centre for Development Studies, Trivendrum, India.
  • Handle: RePEc:ind:cdswpp:407
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    References listed on IDEAS

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    19. T.R. Dilip, 2010. "School Educational Attainment in Kerela: Trends and Differentials," Working Papers id:2516, eSocialSciences.

    More about this item

    Keywords

    Remittances; consumption; Investment; Growth; Interest;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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