EXPLORING THE IMPACTS OF EXTERNAL DEBT AND REMITTANCES ON ENVIRONMENTAL SUSTAINABILITY OF MAJOR SOUTH ASIAN COUNTRIES

Abstract Drawing on the New Economics of Labour Migration and debt overhang theories, this study investigates the joint impact of remittances and external debt on CO 2 emissions in India, Pakistan, Bangladesh and Sri Lanka from 1991 to 2023. Using balanced panel data and multi-stage estimation techniques—including pooled OLS, Driscoll–Kraay standard errors and Feasible GLS—the study finds that remittance inflows consistently reduce emissions, likely by enabling cleaner household investments. In contrast, both external debt stock and debt servicing increase emissions, suggesting that debt burdens may crowd out environmentally friendly public spending. Notably, the interaction between debt stock and servicing shows a mitigating effect, while heavy debt servicing diminishes the environmental benefits of remittances. Additionally, urbanization and financial development contribute to higher emissions. These findings highlight the need for integrated policies that direct remittances towards green investments and incorporate environmental conditions into debt-servicing frameworks, helping South Asian countries pursue more sustainable development paths.