Macroeconomic determinants of remittances to India

Abstract

Migration and remittances have always been an exciting arena of research for economists around the globe. Remittance flows have evolved as a significant economic variable over the past decade. In several developing countries, remittances exceed the other capital inflows and value of total exports. Thus, it is widely recognised as a potential funding source for economic development in emerging economies. The inflow of remittances to India has increased tremendously in the recent past making the country the highest recipient of remittances across the globe. Remittances are an essential component that contributes to narrowing the Current Account Deficit and has always been a stable constituent of the Balance of Payment. This paper is an attempt to explore the vital macroeconomic variables which determine the remittance flows to India. Notably, we enquire into the dominant motives of remittances in the Indian context. We employ an ARDL approach to cointegration to identify the macroeconomic determinants of remittances and find those crucial variables such as exchange rate, oil price, and domestic GDP substantially impact the flow of remittances. The results also indicate that the migrants are more vulnerable to the oil price shocks in host countries. The overall findings of our study are that (1) remittances are not countercyclical in the Indian context (2) remittances are subject to weak investment motive as opposed to the altruistic motive.