Impact of Workers’ Remittances on Economic Growth in South Asia: A Mediated Moderation Approach

Abstract

It is still unknown how employee remittances impact the growth of South Asian economies, despite being a substantial source of outside funding. The present investigation makes advantage of the mediated moderation approach to analyze the impact of worker remittances on the economic growth of seven South Asian nations. It begins by examining the direct effects of remittances on economic growth, the indirect effects through financial development, and the contribution of human capital to strengthening the connection between growth and remittances. The empirical analysis is based on 182 country-year observations and annual panel data from 2000 to 2025. Growth was gauged by growth in GDP, workers' remittances by personal remittances received, financial development by domestic lending to the private sector, and human capital by the literacy rate. The study also adjusted for gross fixed capital formation, inflation, foreign direct investment, trade openness and exchange rate. Empirical analysis comprised descriptive statistics, panel unit root tests, multicollinearity diagnostics, fixed effects and random effects estimation and Hausman specification tests. The fixed effects model was used to estimate the mediation equation, while the random effects model was used to estimate the main growth model. The results show that workers' remittances have a positive but statistically insignificant direct impact on economic growth. Financial development also has a negligible direct impact on the main growth model. Remittances and human capital do, however, have a positive and statistically significant correlation, suggesting that the growth impact of remittances is strengthened by rising literacy. The findings indicate that the influencing factors of economic growth are gross fixed capital formation, foreign direct investment and the openness of the economy, where the effect of economic openness is negative and significant. The findings reveal that while trade openness has a negative and significant influence on foreign direct investment and gross fixed capital formation, economic growth has a positive and significant impact. The mediation results also suggest that remittances and literacy have a positive and significant relationship with financial development. The study overall finds that remittances' growth impacts in South Asia may be limited, as they require supportive factors like the depth of the financial sector, macroeconomic stability, human capital, and productive investment. Policies that support formal remittance channels, financial inclusion, literacy, profitable investment, and export competitiveness are recommended in this paper.

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