Short-Run Costs, Long-Run Gains? The Remittances andEconomic Performance in Nepal

The study examines the role of remittances in determining Nepal’s economic performance ‎during the post-democratization era. Using annual time-series data from 1991 to 2022, the ‎analysis applies the Autoregressive Distributed Lag (ARDL) bounds testing framework ‎combined with an Error Correction Model (ECM) to capture both short-run and long-run ‎relationships between remittance inflows and economic performance, proxied by real GDP per ‎capita. The findings present mixed evidence: remittances exert a negative and statistically ‎significant impact in the short run, whereas in the long run they exhibit a positive and ‎statistically significant association with economic growth. This pattern reveals inefficiencies in ‎remittance utilization and calls for policies to promote productive investment. Specifically, in the short run, remittances are largely directed toward household consumption rather than productive investment, which can limit their immediate contribution to economic performance. At the same time, remittance inflows may lead to real exchange rate appreciation, weaken export competitiveness through Dutch Disease effects, and reduce labor force participation by encouraging income complacency. These results underscore the need for policy interventions that strengthen institutional governance and promote financial literacy among remittance-receiving households to maximize the productive use of remittance inflows. In addition, fostering public-private partnerships can help channel ‎remittances into productive sectors, thereby enhancing their developmental impact on Nepal’s ‎long-term economic performance‎.