Remittances and GDP in Jamaica: An ARDL Bounds Testing Approach to Cointegration

ABSTRACT

Similar to other developing nations, Jamaica’s remittances, specifically inflows, are an important source of income support and foreign exchange earnings. Anecdotally, much has been said about the relationship between remittances and GDP in this country. Yet, less has been established using rigorous statistical inference. We test for unit roots with structural breaks and use the autoregressive distributed lag (ARDL) approach to cointegration to help fill this lacuna in the literature on Jamaica. Using annual data for the 1976–2014 period, we examine the relationship between GDP and remittances, both measured in constant 2010 US dollar terms, as we control for the common determinants of economic growth. The main finding is that GDP and remittances are cointegrated relationship wherein they both reinforce each other positively. This finding is statistically robust as the ARDL models have well-behaved errors and parameters that are generally stable over the period. We discuss policy implications of this finding.

KEYWORDS:

• Remittances
• GDP
• cointegration
• error correction
• ARDL bounds testing

JEL CLASSIFICATIONS:

• C32
• F24
• F43

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Anupam Das http://orcid.org/0000-0002-4910-6290

Adian McFarlane http://orcid.org/0000-0001-6495-6237

Young Cheol Jung http://orcid.org/0000-0002-2531-1732

Notes

1 The tests were also performed with intercept and trend and the conclusions were the same.

2 We also conducted these estimated these regressions with breakpoints but the results were not materially different. The breakpoints were statistically insignificant owning to perhaps a fuller data generation process being specified for each variable within the ARDL framework.