The Impact of Remittances on Climate Change: Empirical Evidence from Nepal

Abstract

The existing literature has studied the impact of remittance inflow on climate change for several developing countries. However, the existing literature has not adequately addressed how different levels of remittances asymmetrically affect climate change. In this study, we address this research gap using the multiple threshold non-linear autoregressive distributed lag approach. Our study demonstrates how minor, moderate and major changes in remittances influence climate change differently. Our analysis, based on time-series data for Nepal, reveals that minor, moderate and major changes in remittances have an asymmetric impact on climate change. In the long run, a minor rise in the inflow of remittances has a significant negative effect on climate change, a moderate rise has a large positive effect and a major rise has a positive effect, although smaller than that of a moderate rise. Thus, we observe an inverted ‘U’-shaped relationship between remittances and climate change. Additionally, we present a new conceptual framework to discuss this phenomenon. Prior studies have employed the non-linear autoregressive distributed lag (NARDL) model to examine this topic, but such analysis is absent in the Nepalese context. Therefore, we also apply the NARDL model to assess how positive and negative shocks in remittances influence climate change. Our findings confirm the asymmetric effect of remittances on climate change under the NARDL framework as well.

JEL Codes: C32, F24, Q54, Q56