THE IMPACT OF REMITTANCES ON ECONOMIC GROWTH IN INDONESIA

Abstract

This research is motivated by the important role of remittances as a source of foreign exchange that has the potential to drive economic growth through consumption, investment, and household income. However, its effectiveness is influenced by domestic structural conditions, including financial development and trade openness. This study aims to analyze the influence of remittances, financial development, trade openness, and previous period economic growth on current economic growth in Indonesia in the short and long term. The method used is the Autoregressive Distributed Lag (ARDL) with secondary quarterly data from 2012–2023 from BPS and Bank Indonesia. The results show that economic growth in the previous quarter has an effect on economic growth itself in the fourth lag but is negative, remittances have a positive and significant effect in the short and long term, financial development has a positive effect in the current quarter, a negative effect in the first lag, and is insignificant in the long term, trade openness has a negative effect in the short term and is insignificant in the long term, all variables simultaneously have a significant effect on economic growth in Indonesia.