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Remittances, Economic Growth and Investment Nexus: Evidence from Nepal

Author

Listed:
  • Shashi Kant Chaudhary, PhD

    (British University Vietnam)

Abstract

This paper assesses the contribution of remittances on GDP and private gross fixed capital formation of Nepal by employing the ARDL bound test approach. The model incorporates the level of financial development, and the institutional quality of Nepal as regressors in addition to the macroeconomic regressors recognised by the literature. Perron’s (1997) innovation outlier model of breakpoint unit root test has been used to confirm the suitability of the variables in the ARDL bounds test approach. The findings show a positive effect of remittances on GDP while a negative effect on private gross fixed capital formation. The paper concludes that remittances do not act as a source of capital flows in the context of Nepal, rather they behave as compensatory transfers to the recipient households. To align remittances in productive activities such as self-employment, financial investment, etc., a remittance-focused policy is advised to reach out the recipients and provide them rigorous advisory and training supports.

Suggested Citation

  • Shashi Kant Chaudhary, PhD, 2022. "Remittances, Economic Growth and Investment Nexus: Evidence from Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 34(1), pages 1-23, April.
    • Handle: RePEc:nrb:journl:v:34:y:2022:i:1:p:1
    as

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    File URL: https://www.nrb.org.np/contents/uploads/2022/04/vol-34_art1.pdf
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    References listed on IDEAS

    as
    1. Karan Singh THAGUNNA & Saujanya ACHARYA, 2013. "Empirical Analysis of Remittance Inflow: The Case of Nepal," International Journal of Economics and Financial Issues, Econjournals, vol. 3(2), pages 337-344.
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    3. Ralph Chami & Connel Fullenkamp & Samir Jahjah, 2005. "Are Immigrant Remittance Flows a Source of Capital for Development?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 55-81, April.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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    6. Ahmet Murat Alper & Bilin Neyapti, 2006. "Determinants of Workers' Remittances: Turkish Evidence from High-Frequency Data," Eastern European Economics, Taylor & Francis Journals, vol. 44(5), pages 91-100, October.
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    More about this item

    Keywords

    ARDL; Economic Growth; Investment; Nepal; Remittance;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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