Econometric investigation of sectoral contributions to remittance inflows in Kerala using the VECM framework

The sustained outmigration from Kerala has significantly contributed to the surge in remittance inflows, which have become a critical driver of the state’s economic advancement. As India maintains its position as the world’s largest recipient of remittances, Kerala remains one of the most prominent subnational beneficiaries. Although remittances have historically played a pivotal role in shaping Kerala’s developmental trajectory, there is a growing imperative to channel these financial inflows into productive investments across various sectors of the economy. Within this context, an undisturbed system analysis identifies agriculture, industry, and services as key sectors potentially influenced by remittance flows. The present study utilises the Vector Error Correction Model (VECM) framework to investigate the sector-specific contributions to Kerala’s remittance-induced economic growth. This econometric approach facilitates an examination of both the long-term equilibrium relationships and short-term adjustments among the variables. The empirical findings highlight the differentiated impact of each sector, with particular emphasis on the significant role played by the agricultural and industrial sectors in attracting and sustaining remittance flows.