Growth Impact of Remittances in the Presence of Uncertainties and Complexities: Evidence from Global Emerging Markets

Abstract

Remittance inflows serve as an important source of income for many developing, particularly emerging, economies. This study investigates the short- and long-run relationships between remittances and economic growth in the presence of economic uncertainties, capturing policy uncertainty, financial market instability, political instability, as well as economic complexity reflecting production diversification and sophistication. The analysis is based on data from 26 emerging economies from 1996 to 2023. Results from the cross-sectional dependence test necessitated the use of the Cross-Sectional Autoregressive Distributive Lag model to account for the long- and short-run cross-sectional dependence among the variables. Consistent with some previous literature, the results indicate that remittances, in isolation, exert a negative impact on economic growth in global emerging economies. However, in contrast to prior studies that focus only on the individual effects of remittances, the interaction between remittances and economic uncertainties and complexities reveals that remittances positively contribute to economic growth when these factors are taken into account. Policy implication highlights the need to incorporate macroeconomic and political uncertainties, as well as production complexities, in designing remittance-related policies for emerging economies.

JEL Classification F24, L16, D8, Q5, Q43