Abstract Nepal's economic growth is influenced by complex interactions among remittances, trade, investment, and GDP. Remittances are crucial for economic stability, but their weak link to profitable investment raises concerns about sustainable development. The export of low-value goods restricts trade opportunities, while imports create trade deficits. Investment, measured by gross fixed capital formation, faces obstacles from institutional barriers and inefficient policies. This study examines the dynamic relationships between real GDP, exports, imports, remittances, and GFCF using a Vector Autoregressive model with annual data from 1975 to 2023. The appropriateness of an unrestricted VAR model is verified through unit root and Johansen cointegration tests. Granger causality results show a unidirectional relationship from remittances to GDP, with exports being insensitive to GDP shocks, while investment and imports are positively influenced. Investment and remittances significantly contribute to the long-term fluctuations of GDP. These findings emphasise the vital role of remittances in Nepal's growth and recommend policies to channel remittance inflows into productive sectors, diversify exports, and enhance capital formation efficiency.
Poudel et al. (Tue,) studied this question.