Are Remittances an Opportunity or A Threat to Sustainable Environmental Quality in India? Evidence from Nonlinear Smooth Transition Models

Abstract

The inflow of remittances is a major source of external financing for developing countries and play a crucial role in economic welfare. It is also associated with environmental degradation, despite its stimulating effects on industrial production, aggregate demand, savings and investments. This study inspects the impact of remittances on environmental quality in India using non-linear time series methods covering the period 1975 to 2022. Ecological footprint is used as an indicator of the quality of the environment to investigate the relationship between remittances inflows, GDP per capita, net FDI inflows and financial development. Asymmetric smooth transition models allowing nonlinearity and structural breaks are used to depict the relationship between the variables. The empirical results show that remittance inflows, financial development and economic growth contribute environmental pollution and deteriorate environmental quality in the long and short term. Based on the results, it is recommended to use remittances in India as a useful policy instrument to support the demand for energy efficient products and environmentally friendly investments.