FOREIGN REMITTANCES AND INCLUSIVE GROWTH: A DYNAMIC PANEL DATA ANALYSIS USING GMM FOR SELECTED SOUTH ASIAN ECONOMIES

Abstract

Remittances from abroad represent a central channel of exogenous financial flows to developing countries, often outpacing foreign direct investment. Despite its macroeconomic relevance, economic growth tends to reflect asymmetric patterns of distribution, making an analytical shift towards the concept of inclusive growth imperative. This research carefully assesses the role of foreign remittances in inclusive economic growth in four South Asian economies—Pakistan, Bangladesh, Sri Lanka, and India—over the period 1990-2019. Using a sound econometric model, the study combines Generalized Method of Moments (GMM) estimation, a method carefully crafted to eliminate endogeneity bias, heteroskedasticity, and omitted variable biases characteristic of panel data analysis. With the help of dynamic panel estimators, the study separates the causal channels through which remittances increase per capita income and the elasticity of employment, thus empirically validating the status of remittances as drivers of inclusive economic growth. The empirical estimates reveal the contradictory characteristics of remittances in terms of the ability to contribute to macroeconomic stability while subjecting recipient economies to exogenous volatility and distorting labor markets.  This study strengthens existing academic literature by providing methodologically sound evidence on remittances as a cornerstone of sustainable and equitable economic growth. Future research should combine nonlinear modeling and structural equation methods to enhance the analytical detail of remittance-growth relationships.