Workers' remittances and economic growth: new evidence from an ARDL bounds cointegration approach for Sri Lanka

Abstract

PurposeThe objective of this study is to examine the long-run relationship between workers' remittances and economic growth in Sri Lanka using time series data spanning 1975–2021.Design/methodology/approachThis study employed both exploratory data analysis (EDA) and inferential data analysis (IDA) tools. EDA includes the scatter plots, confidence ellipse with Kernel fit, whereas IDA covers unit root test, the autoregressive distributed lag (ARDL) bounds technique, the Granger's causality test, and impulse response function (IRF) analysis.FindingsEDA confirms that workers' remittances have a positive relationship with per-capita gross domestic product (GDP). All variables used in this study are I(1). This study is exhibited that workers' remittances have a positive long-run relationship with per-capita GDP. The estimated coefficient of the error correction term shows that the dependent variable moves towards the long-run equilibrium path. Workers' remittances have a short-run and long-run causal relationship with per-capita GDP. The IRF analysis indicates that a one standard deviation shock to workers' remittances has initially an immediate significant positive impact on economic growth.Practical implicationsThis study provides insights into workers' remittances in economic growth in Sri Lanka. Further, the findings of this study also provide evidence that workers' remittances increase economic growth.Originality/valueUsing ARDL bounds test, Granger's Causality test and IRF analysis for examining the relationship between workers' remittances and economic growth are the originality of this study.