Remittances as a determinant of import function: A time series analysis

Abstract

The time series analysis focuses on establishing a relationship between remittances and import in the economy of Sri Lanka. The present study’s objective, therefore, examines the relationship between remittances inflow and imports in the case of Sri Lanka. Empirical analyses are carried out with the time series econometric techniques encompasses Johansen cointegration test, Vector Auto-Regressive (VAR) analysis and Granger-causality test using time series data over the period of 1977-2017. The main finding is that there is a bidirectional causality relationship between imports and remittances in Sri Lanka. Despite, there is the absence of long-run determination between the two, in the short-run, foreign remittances determine imports. Therefore, it should necessary to take appropriate strategies and migration policy changes to convert the utilization of foreign remittance towards investment.