Analysis of Interconnectedness in Indian Subcontinent Remittances from the Gulf Cooperation Countries

Indian subcontinent is a major remittance receiver. With similar labor market characteristics, their workers go to same host countries. Therefore, their labor is substitutable for each other with high degree of connectedness with direct consequences on remittance inflows. Yet, due to social and political considerations in host countries, substitution may not take place. The issue is an empirical question. We study interactions of remittance inflows into India, Pakistan, Bangladesh and Sri Lanka via frequency connectedness. We find a low degree of spillovers across countries, i.e., dynamics of remittance inflows in each country are largely explained by internal factors, not due to spillovers from other countries. That is, remittance inflows in these countries are essentially independent. We also observe that information processing is faster in the short-run than the long-run indicating that market participants are aware of dynamics in other markets. The findings have policy implications for unemployment and foreign exchange.