The Effects of Remittances on Inflation Rates in Selected Developing Countries (2002–2022)

Abstract

 This study examines the impact of financial remittances on inflation rates in selected developing countries over the period 2002 to 2022. Remittances, as a significant source of foreign income, play an effective role in improving household living standards and reducing poverty. However, these financial inflows may have complex effects on macroeconomic indicators, particularly inflation. The objective of this research is to explore the relationship between remittances and inflation. To achieve this, panel data from five selected countries [Afghanistan, Pakistan, Nepal, Sri Lanka, and India] were collected. The research methodology is based on an econometric model using the Generalized Least Squares (GLS) approach. Data were obtained from reputable international sources such as the World Bank, and unit root and cointegration tests were conducted to validate the models.The results show that government expenditures, nominal effective exchange rate, and money supply have a positive and significant impact on inflation, whereas remittances have no statistically significant effect on inflation. This finding indicates that in the studied countries, remittances do not play either an inflationary or deflationary role. Therefore, policymakers should focus on the effective management of fiscal and monetary policies, stabilization of the exchange rate, and directing foreign exchange resources towards productive investments. Additionally, strengthening economic infrastructure can help enhance readiness to deal with the potential impacts of remittances on inflation in the future. The findings may serve as a basis for further research in this field.