Dynamic Linkages Between Remittances and Financial Development in India: An Empirical Analysis Through ARDL Estimation

Abstract

Remittances are the largest source of external finances for emerging economies, and therefore form a major place in the migration development nexus and debates. Our study looks into the impact of financial development on the inflow of personal remittances in the context of India. As only a few studies earlier have looked into country specific effects, our contribution to the literature is manifold. Our primary goal is to assess whether remittances are interconnected with financial development that may leads to the overall development of the economy and people in several ways. To measure the impact if financial development on remittances, we employ the Financial Development Index as calculated by IMF and personal remittance data provided by World Bank for the period 1986 to 2021, taking GDP Growth, Inflation and FDI as control variables. The study uses Auto Regressive Distributive Lag (ARDL) model to cointegration to examine the relationship between personal remittances and financial development. Our results reveal that, in the short run, financial development does not exhibit a significant relationship with remittances but does show a long-run significant impact on the inflow of personal remittances to India, leading to inclusive growth and financial inclusion.