From Climate Stress to Economic Relief: Exploring the Relationship Between Climate Change and Remittances in SAARC Countries

Abstract

Climate change has emerged as a systemic macroeconomic risk with far-reaching implications for financial flows and economic resilience, particularly in developing regions. This study investigates the dynamic relationship between climate change, macroeconomic sensitivity, and remittance inflows in the South Asian Association for Regional Cooperation (SAARC) countries over the period 2000–2023. Grounded in the climate–migration–remittance nexus, the analysis integrates temperature and precipitation variability with macroeconomic responsiveness and adaptive capacity to provide a comprehensive assessment of how environmental shocks influence remittance behavior. Employing advanced panel econometric techniques—
including Cross-sectional Augmented Dickey–Fuller (CIPS) unit root tests, Pesaran’s cross-sectional dependence framework, Panel Vector Autoregression (PVAR), and LASSO regression—the study captures both short-run dynamics and long-run interdependencies across countries. The findings reveal a nuanced relationship: rising temperatures exert a positive and statistically significant effect on remittance inflows, suggesting climate-induced migration and compensatory financial transfers, whereas extreme precipitation shocks (e.g., floods and droughts) disrupt remittance flows by constraining migrants’ earning capacity and financial transmission mechanisms. Furthermore, macroeconomic sensitivity amplifies the 
transmission of remittance shocks into broader economic outcomes, highlighting the structural dependence of SAARC economies on external income flows. A key contribution of the study lies in identifying adaptive capacity as a critical moderating factor. Countries with stronger institutional frameworks, infrastructure, and financial inclusion exhibit greater resilience, maintaining stable remittance inflows despite climate-induced disruptions. The Granger causality 
results further indicate a bidirectional relationship between climate change and 415 remittances, underscoring the endogenous nature of this linkage within the macroeconomic system. The study contributes to the literature by offering an integrated empirical framework that links climate variability, macroeconomic responsiveness, and remittance dynamics within a highly vulnerable and remittance-dependent region. From a policy perspective, the findings underscore 
the need for climate-resilient economic planning, enhanced adaptive capacity, and targeted financial inclusion strategies to safeguard remittance flows as a stabilizing force. Strengthening regional cooperation within SAARC is also imperative to mitigate cross-border climate risks and sustain economic resilience in the face of escalating environmental challenges.