Testing cointegration between workers' remittances and human capital formation in Sri Lanka

Abstract

PurposeThis study investigates the long-run relationship between workers' remittances and human capital formation in Sri Lanka by using the macro-level time series data during the period of 1975–2020.Design/methodology/approachIn this study, the augmented Dickey–Fuller (ADF) and Philips–Perron (PP) unit root tests, the autoregressive distributed lag (ARDL) bounds cointegration technique, the Granger causality test, the forecast error variance decomposition technique and impulse response function analysis were employed as the analytical techniques.FindingsIn accordance with the results of unit root tests, the variables used in this study are mixed order. Results of cointegration confirm that workers' remittances in Sri Lanka have both long-run and short-run beneficial relationship with human capital formation. The Granger causality test results indicate that there is a two-way causal relationship between workers' remittances and human capital formation. The results of forecast error variance decomposition expose that innovation of workers' remittances contributes to the forecast error variance in human capital in bell shape. Further, the empirical evidence of impulse response function analysis reveals that a positive standard deviation shock to workers' remittances has an immediate significant positive impact on human capital formation in Sri Lanka for a period of up to ten years.Practical implicationsThis research provides insights into the workers' remittances in human capital formation in Sri Lanka. The findings of this study provides evidence that workers' remittances help to produce human capital formation.Originality/valueBy using the ARDL Bounds cointegration and other techniques in Sri Lanka, this study fills an important gap in academic literature.

An Asymmetric Nexus: Remittance-Led Human Capital Development in the Top 10 Remittance-Receiving Countries: Are FDI and Gross Capital Formation Critical for a Road to Sustainability?

“…Mohamed Aslam and Sivarajasingham [38] investigated the impact of remittances on human capital formation in Sri Lanka by using macro-level, time-series data from 1975-2020. The study documented a positive, statistically significant association between remittances and human capital formation in both the long and short run.…”

“…According to the existing literature, two studies have measured human capital development with empirical assessments: The Human Capital Development Index [38] and secondary-school enrollment [37]. Adenutsi [37] was the first to examine the link between foreign remittances and human development; in his study, he suggested that remittances had a beneficial influence on human development.…”

Impact of Remittance on Educational Outcomes: Empirical Evidence from Nepal

“…Additionally, to analyze the causal connection of remittance to education in the short-run, a pairwise Granger causality test is employed. With the null hypothesis of Xt does not Granger cause Yt, the specification can be formed as follows (Granger, 1988;Aslam & Sivarajasingham, 2023):…”

“…With increasing emigration, remittances are an important source of capital input in developing countries, and they can serve as both a source of physical and social capital (Chami et al, 2005;Meyer & Shera, 2017;Sinha et al, 2019). Workers' remittance thus, can promote human capital in the short-and long-run (Aslam & Sivarajasingham, 2023). Many studies linked remittance to educational attainment via income, investment, and consumption perspectives.…”

“…The study covers the 41-year annual data set spanning from 1981 to 2021 AD. Gross enrollment in secondary level and tertiary level were proxied for education outcomes and per capita remittances were proxied for remittance under this study (Aslam & Sivarajasingham, 2023;Komla, 2018). To estimate the impact of remittance on education, dependency ratio, education expenditure, GDP per capita, net migration, and rural population were considered as the endogenous variables.…”