THE ROLE OF EMIGRANT’S REMITTANCES AND EXTERNAL DEBT IN ECONOMIC GROWTH OF TOP SEVEN REMITTANCE’S RECIPIENT COUNTRIES

Abstract

The heterogeneous impacts of remittances and external debt on economic growth in various context especially in top remittance’s recipient countries is vexatious  enigma for researchers and practitioners. Thus, the basic purpose of this study is to investigate the effects of remittances and external debt on economic performance of top remittance’s recipient countries. For this purpose, the panel data from 1991-2022 for these countries obtained from world development indicator (WDI) is analyzed by using fixed effect and Panel corrected standard error (PCSE) model. PCSE model rectifies the auto, serial correlation, heteroscedasticity and cross sectional dependence problems in the estimation. The results demonstrate that remittances, gross capital formation, foreign direct investment and labor force participation rate positively and significantly affect the economic performance of selected countries. However, the external debt and volume of trade have negative and significant influence on the economic growth of these countries. On the basis of findings, it is recommended that these countries should strive for cost effective and efficient transmission of remittances through formal channel of banking and money transfer companies and initiate the crack down against the informal and illegal businesses of hawala and hundi; as approximately half of remittances still are being remitted through these informal channels. Moreover, the remittances should be utilized in human and physical capital formation along with amortization of external debt burden by considering remittances as a substitute of foreign borrowing rather than to regard them as a collateral for extra foreign loans.