An Analysis of Relationship Between Remittances and Imports of Nepal

Abstract

Background: The remittance has become one of the main sources of foreign exchange and it has brought significant and structural changes in the economy of Nepal. Similarly, Nepal has had a significant trade imbalance
for many years. These two variables are most contentious topics in this decade.
Objectives: In this context, the paper has examined the impact of remittance inflows on import in Nepalese
economy. Method: A suitable econometric model was developed by including the major sources of foreign exchange i.e. export, foreign assistance, and tourist earnings together with remittance in the explanatory variables.
The necessary data were obtained from the official website of NRB from the years 2000/01 to 2021/22, and then
the stationarity of the variables was tested. Based on the results of the stationarity test, a suitable ARDL model
was then applied to measure the long- and short-term effects of the explanatory variable.
Results: The study’s findings revealed that remittances and the lagged import were main variables to determine
the size of import. Both variables had a positive impact on imports, but other factors i.e. tourist earning, export
and foreign assistance had an insignificant impact over response variable.
Conclusion: The study indicates that the hypothesis was accurate. It means when remittance revenue rises
in the economy, imports rise along with it. The primary cause of this is remittances have increased recipients’
income and the domestic production hasn’t increased significantly due to an increase in absenteeism. As a result
of mismatch between rising demand and stagnant supply, the import volume has increased.