Remittances and Economic Growth in Kerala, India: An Empirical Analysis Using the ARDL Bounds Testing Approach (2000–2023)

Abstract

Kerala receives one of the highest per-capita inflows of international remittances in India, with the Kerala Migration Survey 2018 estimating remittance receipts of approximately ₹85,092 crore, equivalent to 19.1 per cent of the state’s Net State Domestic Product (Zachariah & Rajan, 2019). Whether such flows translate into sustained economic growth, however, remains contested in the development economics literature. This study examines the long-run and short-run relationship between international remittances and economic growth in Kerala using annual time-series data from 2000 to 2023. Drawing on the new economics of labour migration (Stark & Bloom, 1985) and endogenous growth theory (Romer, 1986), the paper specifies a multivariate model linking per-capita real gross state domestic product (GSDP) to remittance inflows, gross fixed capital formation, human capital, financial development, and trade openness. The Autoregressive Distributed Lag (ARDL) bounds testing procedure proposed by Pesaran, Shin, and Smith (2001) is employed to test for cointegration, complemented by the Toda–Yamamoto causality test. Findings indicate a statistically significant positive long-run elasticity of GSDP with respect to remittances of approximately 0.18, conditional on financial development. Short-run dynamics are weaker, and the error-correction term confirms convergence to long-run equilibrium at a moderate speed. The results support a complementarity hypothesis: remittances foster growth when intermediated through a developed financial sector, consistent with Giuliano and Ruiz-Arranz (2009). Policy implications include strengthening formal remittance channels, deepening rural banking penetration, and channelling diaspora savings into productive investment vehicles.