Testing the Causal Relationship between Remittances and Private Investment: A Panel Granger Causality Approach

This paper aims to study the role of remittances and private investment with a sample including 30 Asia and the Pacific developing countries. We apply the Granger causality technique to identify the causal relationship between the variables. The database is sourced from World Bank in the period 1985 - 2014. The dependent variable is private investment and the independent variables are the lag of private investment; economic growth rate, the ratio of remittances over GDP; the ratio of Government expenditure over GDP; the trade openness of the economy. The Granger Causality Tests result shows that there is only one-way causality from remittance to private investment existing in research period. Therefore, the study suggests that the government policy should be designed toward promoting private investment for leveling up the rate of economic growth. The study also observes the two-ways causality between government expenditure and private investment as well as trade openness and private investment.