IMPACT OF REMITTANCES ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE FOR NORTH MACEDONIA

Abstract

This paper examines the impact of remittances on economic growth using quarterly time-series data and the Autoregressive Distributed Lag (ARDL) bounds testing approach. Given the mixed order of integration among the variables, the ARDL methodology is employed to investigate both short-run and long-run dynamics between GDP growth and remittance inflows, while controlling for foreign direct investment, gross capital formation, trade openness, inflation, and government consumption. The results of the bounds test confirm the existence of a stable long-run cointegrating relationship among the variables. However, the estimated long-run coefficients indicate that remittances do not exert a statistically significant positive effect on economic growth. Short-run dynamics further reveal that remittances have no immediate growth-enhancing impact, whereas gross capital formation emerges as a key driver of economic growth. The error correction mechanism confirms rapid adjustment toward long-run equilibrium following short-run shocks. These findings suggest that remittance inflows are predominantly used for consumption rather than productive investment. The study highlights the importance of policies aimed at channeling remittances into productive sectors in order to enhance their contribution to sustainable economic growth.