The asymmetric impacts of remittances on innovation in middle-income economies: A nonlinear autoregressive distributed lag approach

Abstract

Innovation is essential for promoting long-term growth in middle-income countries (MICs). Amid growing remittance inflows, understanding how these financial transfers influence innovation outcomes has become increasingly important; however, the prevailing literature overlooks the impact of remittances on innovation, mainly their asymmetrical effect. To address this gap, we employ the nonlinear autoregressive distributed lag approach and the Dumitrescu–Hurlin causality test. Specifically, we investigate the asymmetric effects of positive and negative remittance shocks on innovation in MICs over the short and long run, using panel data from 1996 to 2022. The study employs second-generation panel unit root tests to verify stationarity and second-generation cointegration analysis, confirming a stable long-term relationship among variables. Our findings indicate that positive remittance shocks stimulate innovation, while negative shocks have a detrimental impact. We also explore the significant positive association between innovation and key economic factors, including gross domestic product (GDP) per capita, CO2 emissions, financial development, and capital stock. These results can help policymakers design targeted policies that boost the economic benefits of remittance flows by aligning them with innovation-driven growth initiatives.