Impact of Remittances on Poverty: An Empirical Analysis of South Asia

Abstract

Remittances constitute a significant source of foreign capital inflows that enhance income levels and contribute to economic growth, thereby playing an important role in poverty reduction. This study examines the impact of remittances on poverty while accounting for government spending, employment, and trade openness in South Asian countries over the period 1990–2022. The analysis employs several econometric techniques, including Ordinary Least Squares (OLS), Fixed Effects (FE), Random Effects (RE), and Fully Modified Ordinary Least Squares (FMOLS). The empirical results indicate that remittances, government expenditure, employment, and trade openness have a poverty-reducing effect. The findings from the FE, RE, and FMOLS models consistently confirm that remittances significantly alleviate poverty. Furthermore, Granger causality tests reveal bidirectional causal relationships between remittances and poverty, as well as between remittances and trade openness. Based on these findings, the study recommends that policymakers in South Asian countries design effective strategies to ensure the productive utilization of remittance inflows for sustainable economic development and poverty alleviation.