The Impact of Personal Remittance on Economic Growth in Sri Lanka: An Autoregressive Distributed Lag Bound Test

Abstract

The study explores the impact of personal remittances on the economic growth of Sri Lanka from 1980 to 2021. The Autoregressive Distributed Lag (ARDL) technique is employed to analyze both long-term and short-term effects of personal remittances on the country's economic growth. Findings revealed a positive and statistically significant influence of personal remittances on long-term economic growth. However, no short-term causal relationship between the two variables was observed. Further, it was noted that outward labor migration does not have a significant impact on economic growth either in the long or short run. On the other hand, the study confirmed that gross fixed capital formation significantly and positively contributes to economic growth in both temporal dimensions though foreign direct investment and had a negative but statistically insignificant impact on the long-term economic growth. Moreover, the study underscored the critical role of gross fixed capital formation as a determinant of economic growth, emphasizing its significance both in the long and short run. The study implications highlight the importance of effectively leveraging remittances to foster the economic growth of the country. The intention is to provide valuable insights to the government and policymakers, aiding them in formulating domestic policies for the management of migration from Sri Lanka and strategic utilization of remittances for the country's benefit.