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CASE STUDY: The determinants of remittances to India

Poonam Gupta

Abstract

This paper analyses the macroeconomic determinants of remittances to India and assesses the impact of the current global slowdown on these flows. The paper shows that remittances exhibit a strong trend, whereby they have increased at a robust rate of 10 per cent a year since 1992. The movement of remittances is limited around the trend and traditionally has not been affected by the domestic or external macroeconomic variables. This pattern has changed since 2000, when the remittances have responded positively to the domestic interest rates and the Indian stock market; and negatively to the external interest rates. Looking ahead, a slowdown in the economic growth rate in advanced economies is unlikely to reduce the flow of remittances to India in the short term; but a prolonged slowdown, if it significantly reverses the migration of Indians, can reduce the trend growth rate. 

Keywords

remittances; financial crisis; India; Indian migration

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