Relationship between foreign debt, remittance inflows and economic growth in Nepal

Abstract

Nepal is considered as one of the highest remittance-receiving countries where the inflow of remittance is more than 25 % of the total GDP. Previous researchers have shown the mix results where some studies showed a positive impact whereas some showed a negative impact of remittance on the GDP. Therefore, this study has been conducted to examine the long-term relationship between remittance, exports, foreign debt, inflation, and labor force participation with GDP. The data for the study was collected for the period 1993-2019 from various sources. The data were analysed using various analytical techniques such as Johansen- co-integration test, VECM model, correlation, and regression analysis. The findings from the study suggested that there exists long term relationship between GDP with remittance inflow, foreign debt, exports, inflation, and labor force participation. The individual co-integration also indicates that GDP and these variables have a long-term relationship except the relationship between inflation and GDP. Furthermore, the findings from the regression analysis suggested that remittance inflow, exports, inflation, and foreign debt have a negative impact on economic growth. Based on the findings it is recommended that the remittance-led growth should be closely monitored and the investment of the remittance on the productive sector should be promoted rather than only spending on consumption. Keywords: Economic growth, Remittance inflow, Foreign Debts, Johansen Co-integration and Regression