Relationship between Remittances, Exports, Foreign Direct Investments and Growth in South Asia: A Panel Cointegration and Causality Analysis

The relationship among remittances, Foreign Direct Investments (FDI), exports and economic growth is known to have important role in economic literature for countries suffering from technological distress and unemployment problems. This paper explores the long and short run relationship between remittances, exports, foreign direct investment and economic growth using data of South Asian countries. The study covers the period from 1988 to 2011. Stationarity of the variables have been examined through both first and second generation panel unit root tests to cater for cross-section dependence. After confirmation of panel cointegration, long term coefficients have been estimated by Fully Modified OLS (FMOLS) and Dynamic Ordinary Least Square (DOLS) models. Pooled Mean Group (PMG) methodology is applied to examine the cause and effect relation among the associated variables. Results suggest presence of cointegration among the tested variables. FMOLS and DOLS estimation analysis reveal positive impact of capital, remittances, exports, and FDI on economic growth whereas a negative impact of labor on growth is observed. The causality analysis confirms the presence of long term equilibrium relation among economic growth, labor, capital, remittances, exports, and foreign direct. In short run, exports Granger cause growth and FDI Granger cause exports. Feedback causality is also confirmed between remittances and capital in the South Asian countries.