Does Remittances inflow in India have Dutch Disease Effects? ARDL Cointegration Approach

Author

Department of Economics, Dibrugarh University, Dibrugarh, Assam, India

Abstract

Remittances are a great source of foreign exchange earnings for India as the country receives highest amount of these inflows among other countries in the world. These inflows as they constitute a major part of the country’s external inflows may have important implications on the macroeconomic variables of the country. In this paper, the main objective is to study about the Dutch disease impact of remittances in Indian economy. Autoregressive Distributed Lag (ARDL) model is used for analyzing the Dutch disease impact of remittances using time series data from 1980-2019. The findings reveal that remittances do have Dutch disease impact on the country by appreciating the real exchange rate and through contraction of manufacturing sector of the country. The paper suggest that utilizing remittances in productive investment rather than on consumption can counter the side effects of remittances and will induce growth of both tradable and non-tradable sector of the country. 

Keywords