The Journal of Asian Finance, Economics and Business

Korea Distribution Science Association (한국유통과학회)
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Asymmetric Relationship between Inflation and Remittance Outflows in Saudi Arabia: A NARDL Approach

  • FOUDEH, Musa (Department of Economics, Imam Mohammad Ibn Saud Islamic University) ;
  • AL-ABDULRAZAG, Bashier (Economic Department of Economics, College of Business Administration, King Saud University)
  • Received : 2022.10.10
  • Accepted : 2023.01.15
  • Published : 2023.01.30
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Abstract

The paper aims to investigate the asymmetric long-run and short-run relationships between inflation and remittance outflows in the Kingdom of Saudi Arabia (hereafter KSA) over the period 1971-2019 by using the Nonlinear Autoregressive Distributed Lag (NARDL) model. The statistical tests have supported the validity and stability of the model. The Wald F-test statistics confirm the existence of a long-run equilibrium relationship among the model variables; remittance outflows, positive (negative) shocks in inflation rates, investment, real GDP, and trade openness. Moreover, the empirical results confirm the existence of an asymmetric effect of the inflation rate on remittance outflows. The response of foreign workers to an increase in inflation rates differs from their response to a decrease in inflation rates. However, this asymmetric relationship between the increases/decreases in inflation and remittance outflows is significantly weak. The weakness of this relationship is due to the high marginal remittance propensity of migrant workers, which is explained by the low consumption propensity of foreign workers and their ability to adjust to the high cost of living due to inflation and the imposition of accompanying fees. Finally, the change in the inflation rate is not among the main factors influencing foreign remittance decisions in Saudi Arabia.

Keywords

Acknowledgement

The authors extend their appreciation to the Deanship of Scientific Research, Imam Mohammad Ibn Saud Islamic University (IMSIU), Saudi Arabia, for funding this research work through Grant No. (221411008).

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