Effects of remittance on total factor productivity growth and its relationship with exchange rate in China, India and the Philippines

This study attempt to investigate the effect of remittances on total factor productivity (TFP) growth due to the little attention that have been given on the potential effects of remittances on economic growth via TFP growth. Besides, this study also investigates the effect of exchange rate on remittances as past researchers frequently focused on the micro-determinant of remittances and only few focused on the macro-determinant of remittances especially the effect of exchange rate on remittances in China, India and the Philippines as the sample countries of this study. The recent innovative cointegrating analysis, nonlinear autoregressive distributed lag (NARDL) model of Shin et al. (2014), which is the extended version of the autoregressive distributed lag (ARDL) model of Pesaran et al. (2001), has allowed this study to estimate from the perspective of a nonlinear relationship. This technique allows short-run and long-run nonlinearities through the decomposition of remittances into partial sum of positive and negative changes and the separation of exchange rate into an appreciation and depreciation through the partial sum concept while maintaining the advantages of a typical ARDL. As for the remittances-TFP growth nexus, an annual data is used which covers from 1982 until 2019. The results shows that the effect of remittances on TFP growth is significant in both India and the Philippines in a linear model except for China. However, when a nonlinear model is estimated, the results revealed that the asymmetric effect in all sample countries do indeed exist. This study shows that decrease in remittances significantly affect TFP growth in all sample countries while increase in remittances does not. Several policy implications can be derived such as policymakers should improve the efficiency of their formal channels and should ensure more job availability and better salary offered in their home country. In addition, for the exchange rate-remittances nexus, an annual data is used which covers from 1987 until 2019. The results for the linear model shows that all sample countries have a significant effect of exchange rate on the remittances while in nonlinear model, the results revealed that the asymmetric effect in all sample countries do indeed exist. As for China, appreciation of exchange rate significantly affect their remittances while depreciation of exchange rate does not. However in India, it is vice versa. Besides, in the Philippines, both appreciation and depreciation of their exchange rate significantly affect their remittances. As such policymakers in the Philippines should build up the policy in controlling their exchange rate volatility as both depreciation and appreciation of the exchange rate significantly determine the flow of their remittances while in China and India, policymakers should aware and strengthen their policies to attract their remittances during appreciation or depreciation of exchange rate in their countries. Based on the results, it is clear that the reliance of China, India and Philippines on remittances still exist and that they also rely on the exchange rate movement in determining their remittances inflow into their country. Thus, policymakers should consider nonlinear model in order to avoid erroneous results. Furthermore, policymakers should consider remittances when formulating policies as remittances is a significant determinant of TFP growth and also considering exchange rate as one of the important determinant of the remittances inflow.

Text 125120 - Full Text.pdf Download (1MB) Official URL or Download Paper: http://ethesis.upm.edu.my/id/eprint/18814

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