Impact of digitalization and exchange rate on remittance: Evidence from south Asian countries

Abstract

The main objective of this study is to analyze the impact of digitalization, exchange rate, political stability, employment, and inflation rate on remittances in the short and long run in three South Asian countries, India, Pakistan, and Bangladesh, from 2003 to 2022. Using panel ARDL and wavelet coherence techniques, the findings reveal that digitalization does not have a direct and lasting impact on remittances in both the short and long run. However, there is evidence of a positive short-term correlation in the wavelet. On the other hand, exchange rates (EXC) emerge as a significant driver of remittances, impacting them both in the short and long term. Political stability (PST) and employment (EMP) appear to be less influential, as their coefficients remain insignificant in both time frames, although they exhibit short-term correlations with remittances in wavelet analysis. In contrast, inflation (INF) significantly affects remittances in both the short and long run, with short-term analysis highlighting its leading role in shaping remittance behavior. The results hold important implications for advancing financial inclusion in the context of remittances. Policymakers can enhance digital infrastructure for short-term remittance facilitation, targeting improved accessibility and efficiency, and implement exchange rate stability measures to ensure predictable remittance inflows over both short and long periods. Additionally, they should acknowledge the short-term significance of political stability and employment for remittances while focusing on broader economic stability and inflation control to support remittance behavior in the long run.