EFFECT OF FOREIGN REMITTANCES ON ECONOMIC GROWTH IN SRI LANKA

Abstract

Foreign remittances can be identified as transferred money by migrants from the host country to the home country. The basic hope of migration is to alleviate migrants’ house-hold poverty level. But these foreign remittances are more important income source to the home country economy which arising various economic benefits indirectly. The basic aim of this study is to determine the relationship between foreign remittances and economic growth in Sri Lanka through five mediating channels which human capital, physical capital, government expenditure, financial sector development and trade openness. This study is a quantitative study and the researcher collected annual time series data covering the period from 1975 to 2018 to analyze relevant data to get final results. The researcher used SEM to develop structural relationship among variables and data was analyzed under the 3SLS techniques. The findings showed that remittances have a positive and significant relationship with economic growth in Sri Lanka through physical capital and remittances have a negative and significant relationship with economic growth in Sri Lanka through trade openness from out of those five mediating channels. Foreign remittances have an insignificant relationship with human capital, financial sector develipment and government expenditurein Sri Lanka. The current study provides a signal to policymakers when making policies on the inflow of foreign remittances to Sri Lanka to investment remittances on proper channels and reducing bad effect to obtain high performance through the foreign remittances.