THE ASSESSMENT OF IMPACT OF DIGITAL INFRASTRUCTURE AND FINANCIAL INCLUSION ON THE INFLOW OF FOREIGN REMITTANCES: EVIDENCE FROM SOUTH ASIAN COUNTRIES

Abstract

This paper investigates how digital infrastructure and financial inclusion affect the inflow of foreign remittances in three major South Asian countries: India, Pakistan, and Bangladesh. In recent years, remittances have become a major source of external finance for many developing countries, especially in South Asia. India, Pakistan, and Bangladesh are among the top remittance recipients country in the world. Remittances are a vital source of income for millions of families in these countries and play a key role in supporting domestic consumption, reducing poverty, and strengthening foreign exchange reserves. In countries like India, Pakistan, and Bangladesh, digital infrastructure and financial inclusion have grown steadily over the years, yet their combined role in influencing remittance inflows remains underexplored in empirical research. This study addresses this gap by examining how improvements in digital connectivity and access to financial services—both separately and together—affect the inflow of foreign remittances in these countries. Using annual panel data from 2005 to 2023 for India, Pakistan, and Bangladesh, this research investigates the long-run and short-run impact of digital infrastructure and financial inclusion on remittance inflows. Composite indices for both digital infrastructure and financial inclusion were constructed using Principal Component Analysis (PCA), and the interaction between the two was also examined. The study applies the Pooled Mean Group (PMG) Auto- Regressive Distributed Lag (ARDL) model, which is suitable for panels with variables integrated at different levels. The results show that both digital infrastructure and financial inclusion have a positive and statistically significant long-run effect on remittance inflows. Moreover, their interaction term also shows a strong positive impact, suggesting that these systems work better together than in isolation. The findings suggest that strengthening digital and financial ecosystems can boost formal remittance channels, improve financial access, and support broader economic development. These insights can guide policymakers in designing more integrated digital-financial strategies to enhance the role of remittances in economic growth.