COVID-19 Pandemic, International Remittances and Economic Growth in Kerala: A Macroeconomic Analysis

Murugan G and Pushpangadan K

MPRA Paper from University Library of Munich, Germany

Abstract: The paper develops a methodology for impact analysis of Coronavirus 2019 (COVID-19) pandemic based on Solow’s growth theory for a migration-driven subnational economy by a case study of Kerala, India. A log-linear growth equation of output per capita is regressed on capital stock-gross domestic product ratio (CSDR) and real remittances per capita (RRPC) for the period, 1980-2015. The robust regression on regional growth shows that the growth elasticity of CSDR is 0.43 and that of RRPC 0.28 with an explanatory power of 95 %. From growth accounting principle, only 29 % of the remaining variation needs to be accounted by other factors affecting regional growth. The impact of remittances on growth rate of the economy is positive and statistically significant at 1 % level as against the negative and statistically significant relationship observed in majority of cross-country analysis. The gross state domestic product (GSDP) for the year 2020/21 using national accounting framework incorporating unorganised economic activities shows a reduction of 38.85% from the pandemic impact in the region. The corresponding shrinkage of investment share in GSDP is 24. 5 % from its trend value of 0.63 in 2020/21.This alone reduces the growth rate of output per capita by 10.5 %. Similarly, the reduction in trend value of RRPC is 43.1 % and its impact on growth rate of output per capita is a shrinkage of 12.1 %. The impact of COVID19 on the overall growth rate of output per capita in the economy is- 22.6 %, the sum of the separate effects. It is interesting to note that reduction in growth rate is more from international remittances than from the share of investment in GSDP. Therefore, growthrevival strategy for the region requires special component plan compensating for the shortfall in the international remittances.

Keywords: COVID-19; Solow’s growth model; investment-gross domestic ratio; international remittances and Growth accounting. (search for similar items in EconPapers)
JEL-codes: E6 E65 E69 (search for similar items in EconPapers)
Date: 2021-02-23, Revised 2021-04-28
New Economics Papers: this item is included in nep-fdg and nep-mac
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