Does inflation reduce remittance outflows in Saudi Arabia?

Abstract

This study examines the potential relationship between inflation and remittance outflows in Saudi Arabia over the period 1971–2019 by applying the autoregressive distributed lag (ARDL) model. As a pioneering study in Saudi Arabia, the paper addresses an important literature gap. The statistical tests reveal the model’s reliability and the existence of a long-run equilibrium among the variables. Moreover, the empirical results show a significant negative impact of inflation has on remittance outflows, and the short-run and long elasticities of remittance with respect to inflation are 0.26% and 0.32% respectively. These results suggest that despite the weak elasticity of remittance outflows to the inflation rate, an increase in general prices would reduce remittance outflows in Saudi Arabia. Moreover, we find that the capital investment indicator has a more significant effect on the volume of remittance outflows. Therefore, policymakers in Saudi Arabia should apply appropriate actions to reduce the outflows of foreign workers by urging private companies to hire more Saudi workers, increasing capital investment and encouraging foreign workers, especially those with high incomes, to invest in Saudi Arabia by facilitating their ownership of financial market shares and real estate units.

Keywords:

• Saudi Arabia
• remittance outflows
• inflation
• autoregressive distributed lags model
• cointegration

JEL Classifications:

• O53
• O40
• C21

Acknowledgements

The authors express their gratitude to all of the individuals mentioned in the references who contributed to/for the purpose of this study.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

The authors didn’t receive any funding for this research.

Notes on contributors

Bashier Al-Abdulrazag

Bashier Al-Abdulrazag is a Professor of economics at King Saud University (KSA) and Mu’tah University (Jordan). Holding PhD in economics Graduated from Texas Tech. University USA in 1991. His research interests focus on Labor Economics, Applied Econometrics (TSA), Economic Theory, and International Trade. He published in various Journals: The Journal of Energy and Development, European Scientific Journal, Journal of Empirical Economics., The Jordan Journal for Agricultural Science. Moreover, participating in refereeing for many journals, supervising many graduate theses.

Musa Foudeh

Musa Foudeh is an Associate Professor of Economics at Imam Mohammad Ibn Saud Islamic University, College of Economics and Administrative Sciences and holds a PhD. in Economics from University of Limoges, France. He is a university lecturer in economics with strong academic and teaching background, possessing 12 years of academic experience and six years of banking experience. Foudeh research interests are in the areas of Privatization, Energy Economics, Economic Development and Applied Economics.