The inter-temporal relationship between workers' remittances and consumption expenditure in Sri Lanka

Abstract

PurposeThe objective of this study is to examine the inter-temporal relationship between workers' remittances and consumption expenditure in Sri Lanka over the period of 1975–2017 using the annual time series data.Design/methodology/approachTo test the order of integration of the variables used in this study, the augmented Dickey–Fuller (ADF) and Phillips and Perron (PP) unit root tests were employed. The autoregressive distributed lag (ARDL) bounds cointegration technique was used to examine the long-run relationship between the variables. The Granger causality test was used to examine the causal relationship between the variables.FindingsThe unit root tests confirm that the variables are stationary at 1st difference I(1). Meanwhile, the ARDL test results show that workers' remittances have a positive long-run relationship with consumption expenditure in Sri Lanka. The coefficient of the error correction term indicates that 9.3% of disequilibrium error is adjusted each year and the response variable of the consumption expenditure moves towards the long-run equilibrium path. Further, the results of the Granger causality test indicate that workers' remittances Granger cause consumption expenditure in the short-run.Practical implicationsThe findings have some important policy implications for the design of efficient policy related to workers' remittances and consumption expenditure pattern, the knowledge of which will help promote the macroeconomic stability and welfare of people in Sri Lanka.Originality/valueThis study contributes to the existing literature by using newly developed ARDL bounds cointegration techniques to investigate the inter-temporal relationship between workers' remittances and consumption expenditure in Sri Lanka. Furthermore, to our knowledge, this study is the first research in examining the inter-temporal relationship between workers' remittances and consumption expenditure in Sri Lanka.

Well-being effect of international migration and remittance on human and gender development in South Asian countries

“…This study found that remittance positively and significantly contributes to the human development score with the expected sign and direction. This finding is consistent with the existing literature [ 19 , 28 , 34 ]. Workers’ international remittance positively affects human development in the long run.…”

“…In Sri Lanka, remittance is a significant predictor of human capital formation. However, the development effect varies based on the government’s approach to migrants, which indicates that institutions and governmental policy are closely intertwined with remittance inflow [ 32 , 34 ]. A positive association exists between human development and remittance: the composite index combined with long healthy life, knowledge accessibility and a decent living standard [ 35 ].…”

Dynamic inter-linkage between foreign aid and economic growth in Sri Lanka

“…The fourth is that the ARDL model simultaneously estimates both long-run and short-run dynamics by using a single reduced form of the equation (Harris and Sollis, 2003). The final advantage is that the ARDL Bounds cointegration technique accommodates the fractionally integrated variables in estimating the model (Aslam and Sivarajasingham, 2020).…”

Impact of mobile money access on internal remittances, consumption expenditure and household welfare in Ghana

“…For the poor vulnerable households, remittances can prove very useful in times of economic shocks as both income and consumption smoothing strategies (Quartey, 2006). At the macro level, the inter-temporal relationships between remittances and consumption expenditure has been investigated (Aslam and Sivarajasingham, 2020). In rural areas and developing countries at large, the financial system is usually underdeveloped, limiting remittances received through the financial system.…”