Remittances, unemployment, growth and development: a panel cointegration approach

ABSTRACT

This paper analyses the short-run and long-run dynamics of the relationship between remittances, unemployment, economic growth and human development in developing countries. Vector Autoregressive Model methodology (VECM) was used to examine the short-run dynamics and direction of causality in three separate panels of 23 low-income, 42 lower middle-income and 48 upper middle-income countries for the 1990 and 2019 period. For the estimation of long-run elasticities of remittance flows, Fully Modified (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimation techniques were used. According to the findings of this study, in low-income economies, the direction of causality is from GDP to remittances in the short run. The unemployment rate has a positive long-run effect on HDI in low-income countries, indicating the importance of underutilized labour force in low-income countries. Although remittances affect human development more in low-income economies compared to other developing countries, unemployment in the country of origin has no significant relationship between remittances and development in low-income countries.

KEYWORDS:

• Remittances
• economic growth
• human development
• unemployment
• panel cointegration

JEL CLASSIFICATION:

• F22
• O11
• J60
• C33

Disclosure statement

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

Notes

¹ The Johansen test (Johansen 1991) and Kao residual cointegrations tests (Kao 1999) are also employed for robustness and results are available upon a request.

² See Pedroni (2004) for the detailed discussion.

³ See Banerjee (1999) and Kao and Chiang (Kao and Chiang 2000) for detailed comparison of FMOLS and DOLS