The Nexus between Remittances, Economic Growth and Institutions: Evidence from South Asia

Abstract

In recent years, remittances have become an important source of finance for developing countries. This paper examines the causal links between remittances, economic growth, and institutions in a panel of four South Asian countries, namely Bangladesh, India, Pakistan, and Sri Lanka. We apply both fixed effects and system of generalized method of moments (GMM) in our analysis and we find evidence that while remittances do have a positive relationship with economic growth, the growth effect of remittances decreases with the level of institutional quality. These results suggest that in South Asia, remittances and institutional quality are substitutes.