Impact of remittances on the Nepalese economy and stock market

Abstract

This study explores the profound impact of remittances on Nepal’s economic growth and the performance of the Nepal Stock Exchange (NEPSE). Nepal, with a substantial portion of its Gross Domestic Product (GDP) fueled by remittances from abroad, presents a unique case to examine how these financial inflows from expatriates influence economic dynamics and financial markets within the country. This study aimed to dissect the correlation and causal relationships between remittances, GDP growth, and stock market performance in Nepal. Using robust statistical analysis, including regression and correlation methods, the research sought to identify patterns and quantify impacts that remittances have on economic indicators. The findings revealed a significant positive impact of remittances on NEPSE, suggesting that increased remittance inflows are associated with a buoyant stock market. The study hypothesized and confirmed that households receiving remittances are more likely to invest in the stock market, potentially increasing trading volumes and impacting overall market performance. Moreover, a strong correlation between remittances and GDP growth was observed, indicating that remittances substantially contribute to economic stability and growth, enhancing consumer spending and investment. Dependence on remittance inflows poses risks, including potential economic instability tied to fluctuations in global labor markets and political changes in host countries. The implications of this research are significant for policymakers, economists, and financial analysts. It provides empirical evidence supporting the utilization of remittances as a strategic tool for economic growth and financial sector development, advocating for policies that encourage investment of remittance funds into productive sectors and financial instruments. The study underscores the necessity of a nuanced approach in policy formulation, aimed at fostering an economic environment that can thrive on the benefits of remittances while being shielded from their potential adverse effects. Keywords: Remittances, Economic Growth, NEPSE, GDP, Nepal, Stock Market Performance, Financial Inflows, Economic Policy