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Theoretical and Applied Economics
No. 4 / 2016 (609), Winter

Does remittance drive economic growth in emerging economies: Evidence from FMOLS and Panel VECM

Kalandi Charan PRADHAN
Indian Institute of Technology Bombay, India

Abstract. The study investigates the dynamic relationship among remittances, export, exchange rate and economic growth in emerging (Brazil, Russian Federation, India, China and South Africa) economies using balanced panel data ranging from 1994-2013. Data for all variables have been extracted from World Bank Indicators in terms of US$. The Multivariate Panel Cointegration technique results demonstrate the existence of long run equilibrium relationships among observed variables. Employing the Fully Modified OLS Model (FMOLS), the study finds that remittances have significant negative impact on economic growth in Brazil, Russian Federation and India. However, remittances have significantly positive impact on economic growth in China. As a group FMOLS extends negative impact of remittances on economic growth across the selected emerging economies. Panel Vector Error Correction Model (PVCEM) has been adopted to show the long run and short run causality among the variables across the countries. The PVECM result reveals that there is a long-run causal relationship running from export and remittances to economic growth.

Keywords: Remittance, economic growth, FMOLS, co-integration, panel VECM.

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