An Empirical Analysis: Impacts of Remittances on Aggregate Demand, Household Food Security and Housing Investment in Sri Lanka

The objective of this thesis is to empirically evaluate the impact of remittances on aggregate demand, household food security and housing in a migrant sending/remittances receiving country: Sri Lanka. First, the analysis starts with a macro level examination of the impacts of remittances on the aggregate demand and its components: consumption, investment, imports and Gross Domestic Product (GDP) in Sri Lanka. This analysis is based on a Keynesian type econometric model in which remittances are treated as endogenous. The structural breaks, simultaneous interactions and the trends of selected variables are taken into account in the Vector Error Correction Model (VECM) in the presence of cointegration. Findings of this macro level analysis highlight that remittances and GDP are interdependent in the long-run. Furthermore, remittances positively affect consumption, investment and imports in the long-run, while there are no significant dynamic impacts in the short-run. Positive net trends for consumption and investment and a negative net trend for imports indicate significant long-term improvement in aggregate expenditures, but not so for remittances. Complex results of the first contributory chapter confirm the need for an examination of the impact of remittances on consumption and investment at the micro level. Further, the micro level impacts of remittances are different from macro level impacts. Therefore, this thesis includes two micro level analyses: one on consumption and the other on investment. Food consumption and housing are selected as proxies to examine the household-level impact of remittances on consumption and investment respectively, applying different variations of propensity score matching technique...