Effects of Workers' Remittances and its Volatility on Economic Growth in South Asia

This study investigates the effect of workers'remittances and its volatility on economic growthoffive South Asian countries by employing long time series data from 1975 to 2009. Cointe-gration results confirm a significant positive long run relationship between remittances andeconomic growth in India, Bangladesh, Sri Lanka and Nepal, but a significant negative rela-tionship in Pakistan. Conversely, the volatility of workers'remittances has a negative and sig-nificant effect on economic growth in Pakistan, Indian, Bangladesh and Sri Lanka, but anegative but insignificant impact in Nepal. All sensitivity analyses confirm that the results arerobust. A less volatile inflow of workers'remittances is growth-enhancing for all countries. Itis suggested that policy makers should make policies to reduce the transaction cost to welcomeremittances into the region. Furthermore, countries like Pakistan should make the policies todiscourage voluntary unemployment.