Universal Journal of Accounting and Finance Vol. 9(6), pp. 1433 - 1453
DOI: 10.13189/ujaf.2021.090621
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The Role of Remittances on Financial Development through Capital Formation and FDI Channels: A Symmetric and Asymmetric Investigation for Selected South Asian Countries

Md. Qamruzzaman ^1,*, Rajnish Kler ^2
1 School of Business and Economics, United International University, Dhaka, Bangladesh
² Department of Commerce, Motilal Nehru College (E), University of Delhi, Delhi-11002, India

ABSTRACT

The motivation of the study is to gauge the asymmetric effects of remittances (R), gross capital formation (GCF), and FDI on financial development (FD) in Bangladesh, India, Pakistan, and Srilanka spanning the period 1978-2018. The study applied unit root tests, including DF-GLS and Zivot–Andrew, ARDL bound test, tBDM test, Bayer and Hanck combined cointegration test, nonlinear ARDL (NARDL) for asymmetry, and, finally, directional causal effects evaluated with the Toda-Yamamoto causality test. ARDL bound testing documents the long-run association between R, GCF, FDI, and FD, valid for sample countries. Additionally, remittance elasticity exposes a positive, statistically significant linkage with financial development in the long run and short run. The standard Wald test reveals that the test statistics are statistically significant at 1% level, suggesting the asymmetric association between financial development and explanatory variables. The asymmetric association is valid both in the long-run and short-run. With the asymmetric effects of remittances, positive and negative shocks expose positive, statistically significant at a 1% level both in the long-run and short-run. However, in coefficient elasticities, harmful innovations are more critical to financial development than positive innovations in remittances. It suggests that policymakers have to make efforts to formulate policies that induce the migrants to send remittances to the economy. Finally, the directional causality test results disclosed unidirectional causality running from remittances to financial development.

KEYWORDS
Remittances, Financial Development, ARDL, NARDL, Toda-Yamamoto Causality

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Md. Qamruzzaman , Rajnish Kler , "The Role of Remittances on Financial Development through Capital Formation and FDI Channels: A Symmetric and Asymmetric Investigation for Selected South Asian Countries," Universal Journal of Accounting and Finance, Vol. 9, No. 6, pp. 1433 - 1453, 2021. DOI: 10.13189/ujaf.2021.090621.

(b). APA Format:
Md. Qamruzzaman , Rajnish Kler (2021). The Role of Remittances on Financial Development through Capital Formation and FDI Channels: A Symmetric and Asymmetric Investigation for Selected South Asian Countries. Universal Journal of Accounting and Finance, 9(6), 1433 - 1453. DOI: 10.13189/ujaf.2021.090621.