South Asia continues to attract large inflows for worker’s remittances and its macroeconomic impact over the long time horizon has not yet properly investigated. In his study, Arjuna, tested the impact of workers’ remittances on the real effective exchange rate (REER) using an unbalanced panel of all South Asian countries (Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka) for the period 1980-2011. Panel estimation is used by Arjuna to assess the impact of remittances on South Asia and their country-specific impacts are assessed using time series data. In addition, the impact of real interest rate differential, income differential and changes in the nominal exchange rates are examined as determinants of remittances flows. Arjuna found that workers’ remittances have had a positive impact in appreciating the REER in South Asia. The results of the country-level analysis differ from the panel data and show that remittances have resulted in a depreciation of Bangladesh’s REER while for India, the world’s largest remittances recipient, remittances have not had a statistically significant impact on the growth of REER. The income differentials have played a key role in country-specific determinants of remittances flows. While mixed reactions to real interest rate differentials and income differentials are observed across SAARC countries, an appreciation of the exchange rates have continued to attract remittances flows to India, the Maldives and Pakistan.

Arjuna Mohottala is reading towards a PhD in Economics focusing on the economic impact of exchange rate shocks. The research covers broader areas such as the macroeconomy, commodity cycles, workers remittances and international trade. Prior to arriving at The Australian National University (ANU), Arjuna has been functioning as a Senior Economist at the Central Bank of Sri Lanka. While in Sri Lanka, he has been actively involved in the Rotaract movement (the youth arm of Rotary International) and headed the movement in 2009/2010 immediately after the cessation of the hostilities within the country.