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Empirical relationship between workers' remittances and financial development (an ARDL cointegration approach for Sri Lanka)

Ahamed Lebbe Mohamed Aslam, Selliah Sivarajasingham

International Journal of Social Economics

ISSN: 0306-8293

Article publication date: 13 October 2020

Issue publication date: 22 October 2020

540

Abstract

Purpose

The purpose of this study aims to investigate the nature of the relationship between workers' remittances and financial development (FD) in Sri Lanka for the period from 1975 to 2017.

Design/methodology/approach

This study used both the exploratory data analysis and inferential data analysis (IDA) techniques to test the objective of this study. The IDA technique consisted of the augmented Dickey–Fuller (ADF) and Phillips–Perron unit root tests, the autoregressive distributed lag (ARDL) bounds cointegration technique, the Granger causality test and impulse response function analysis.

Findings

The unit root test results show that the variables are in mixed order. The empirical results of cointegration confirm that workers' remittances have a beneficial long-run relationship with FD in Sri Lanka. The Granger causality test result indicates that there is a bidirectional relationship between workers' remittances and FD. The impulse response analysis indicates that a positive shock to workers' remittance has an immediate significant positive impact on the FD of up to 10 years.

Practical implications

The analytical techniques used in this study explain how workers' remittances induce FD in Sri Lanka.

Originality/value

This study fills an important gap in the academic literature by using newly developed ARDL bounds cointegration techniques in Sri Lanka, by using impulse response function analysis, and by studying the dynamic relationship between workers' remittances and FD using time series data.

Keywords

Acknowledgements

The authors express thanks to the Postgraduate Institute of Humanities and Social Sciences (PGHIS), the University of Peradeniya for granting the approval to publish this research article for the fulfilment of the degree of Doctor of Philosophy in Economics.

Citation

Mohamed Aslam, A.L. and Sivarajasingham, S. (2020), "Empirical relationship between workers' remittances and financial development (an ARDL cointegration approach for Sri Lanka)", International Journal of Social Economics, Vol. 47 No. 11, pp. 1381-1402. https://doi.org/10.1108/IJSE-03-2020-0157

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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