The Nexus between Remittance Outflows and GCC Growth and Inflation

Abstract

The literature contains a handful of studies examining the effect of remittance outflows on GCC economies. We reexamine this topic by using panel data for 2004-2014. Specifically, our objective is twofold: First, we examine the nexus between economic growth in the GCC countries and remittance outflows by relaxing the assumption that the effect of remittance outflows on economic growth is the same across the six GCC countries. Research has shown that economic growth declines as remittance outflows increase. Our results show that remittance outflows affect growth in GDP only in the case of Saudi Arabia. For example, when growth in remittance outflows increases by 1 percentage point, then growth in real GDP of Saudi Arabia declines by 0.139 percent. Second, we examine the nexus between inflation and remittance outflows by relaxing the assumption that the effect of remittance outflows on inflation is the same across GCC countries. The literature suggests that inflation declines as remittance outflows increase. Our results for GCC countries show that growth in remittance outflows affect inflation only in the case of Bahrain. For example, when growth in remittance outflows increases by 1 percentage point, then inflation in Bahrain declines by 0.135 percent.