The Growth Effect of Remittances in India: Evidence from a Dynamic Econometric Framework

This study examines the growth effects of remittances in India over the period from 1991 to 2022, with a particular emphasis on their dynamic effects on key macroeconomic variables, including consumption, investment, imports, and income.Adopting a Keynesian econometric framework with a dynamic perspective, the study employs the Two-Stage Least Squares method to address potential endogeneity and estimate the growth effects of remittance flows.The empirical findings reveal that remittances have a significant and positive effect on economic growth in India.Both short-term and long-term marginal propensity to consume and marginal propensity to import are obtained from estimates of the consumption, investment, and import functions, providing insight into the transmission channels of remittance inflows.Impact and dynamic multipliers are computed to evaluate the effects of remittance inflows on macroeconomic aggregates, along with a four-year distributed lag structure to assess their influence on current and future output growth.The findings suggest that remittances stimulate household consumption and imports in the short run, supporting demand-led growth, while in the long run they contribute to sustained income expansion, and macroeconomic stability can be further enhanced through policy measures that promote their productive utilization.