International Journal of Pure and Applied Mathematics Volume 119 No. 17 2018, 767-777 ISSN: 1314-3395 (on-line version) url: http://www.acadpubl.eu/hub/ Special Issue http://www.acadpubl.eu/hub/

Impact of Inflation and Exchange rate on InternationalMigrant Workers to

1Smt.Sangeetha. S, 2Dr. Soju.S

1Assistant professor of Commerce, All Saints’ College, Trivandrum, Kerala,

2Assistant Professor of Commerce, S. N College, Kollam, Kerala, India

Introduction

Kerala has been considered as the thirteen largest economies in India. Around 3,000,000 populations of Keralites are working abroad, mainly in Gulf countries; to where International migration started with the Gulf Boom. Therefore, Kerala economy is largely dependent on trade in services and resulted . In 2012, the state was declared as the highest receiver of overall remittances to India which stood at Rs.49, 965 Crore ie 31.2% of the State's GDP, followed by , Punjab and . S. IrudayaRajan describes this situation as "Remittances from global capitalism are carrying the whole Kerala economy". With 11.8% of the labor force unemployed in 2015, Kerala held eleventh position in .Underemployment, low employability of youths, and a 13.5% female participation rate are the present chronic issues

Migration is an intricate phenomenon that seems to be vital to our human histories, culture and civilizations. It has held one of the most essential positions in the economic and social development discourse in various countries all over the world. Human migration is the movement of people from one place to another with the aim of settling, permanently or temporarily in the new location. Migrants make valuable economic,

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political, social and cultural contributions to the society. They bring with them various socio-economic returns as well as human capital to their families. Migration has been an important factor to reduce poverty, unemployment and relative deprivation in Kerala. The overall atmosphere in Kerala favors migration.

Basically, there are two types of migration

 Internal Migration (Domestic Migration)  International Migration (External Migration)

Internal migration (Domestic) means people within one country moving to another location within its frontier. This type of Migration happens due to various reasons such as in search for jobs, for getting more income, education and for getting more employment opportunities. Whereas International Migration is when people migrate from one country to another. International migration happens because individuals want to increase their personal welfare by moving towards a new country. In addition, it has effects on the welfare, standard of living of those who decide not to migrate and remain in their origin countries. The inward income flow in the form of remittance is considered as the important impact of International Migration. Remittance refers to the part of income earned by the migrants abroad which they send home to support their families and to make investment in the desired lines

In today’s increasingly interdependence and interconnected world, international migration has become a fact that affect all corners of the globe, often making difference between countries of origin, transits and destination obsolete. Now days our modern transportation has made it easier, cheaper and faster for the people to move from one place to another. But at the same time inequality among persons, lack of good jobs, poverty is the major reason that forced people to leave their country in search of better futures for themselves and their families. This international migration can contribute to sustainable economic growth and development in both the home countries and host countries. India was considered as the biggest recipient of remittances globally in the year2015, with the southern state of Kerala accounting for the highest share. India received $69 billion in the form of remittances, followed by at $64 billion, according to the report ‘Remittances and its impact on financial inclusion and development in India’, commissioned by Western

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Union, an American financial services and communications company. Kerala has received 25-30% of the remittances to India, followed by , Tamil Nadu and Punjab. Kerala and Tamil Nadu used these remittances not only for subsistence and debt repayments but also, they used for productive reasons such as education, healthcare expenses and in the form bank savings, the report said. The report prepared by Edelman India, the research and analytics department of Edelman, a communications firm, was presented by HikmetErsek, chief executive and director of Western Union, to finance Minister Arun Jaitley on 5th September. During the year 2014, migrants from developing countries sent home an estimated US $ 436 billion in the form of remittances; it’s a 4.4percent increase while comparing with the previous year2013 ( 2015). These remittances were usually used to improve livelihoods of families and communities through investing in education sector, health, sanitation, housing and for infrastructural development. The importance of remittance by Kerala is evident from the fact that, these remittances were1.74 times the actual receipt of the state, 5.5 times of the money Kerala received from the central government as in the form of budgetary support and 2.3 times the annual non plan expenditure of the Kerala government. These remittances were sufficient to wipe 70 percent of the state’s debt in 2008.At the same time, countries of destination can also get advantage from International Migration. These migrants often fill labour shortages, contribution in the form of tax etc.

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation and avoid deflation in order to keep the economy running smoothly.

An exchange rate is the price of a nation’s currency in terms of another currency. Thus, an exchange rate has two components, the domestic currency and a foreign currency, and can be quoted either directly or indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of the domestic currency. In an indirect quotation, the price of a unit of domestic currency is expressed in terms of the foreign currency. Exchange rates are quoted in values against the US dollar. However, exchange rates can also be quoted against another nations currency, which are known as a cross currency,

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An exchange rate is the price of a nation’s currency in terms of another currency. Thus, an exchange rate has two components, the domestic currency and a foreign currency, and can be quoted either directly or indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of the domestic currency. In an indirect quotation, the price of a unit of domestic currency is expressed in terms of the foreign currency. Exchange rates are quoted in values against the US dollar. However, exchange rates can also be quoted against another nations currency, which are known as a cross currency, or cross rate.

In this paper an attempt is made to find if there is any relationship between Inflation, Exchange rate and International remittance.

DV IV  Remittance Inflation, Exchange rate

Table 4. 1 International remittance to Kerala, Inflation rate and Exchange rate during the period from1991-2016.

Remittance Inflation Rate Exchange rate Year Value AGR Value AGR Value AGR 1991 3025 13.88 22.88

1992 3882 28.33 11.88 -14.41 29.78 30.16 1993 6084 56.72 6.31 -46.89 31.48 5.71 1994 7069 16.19 10.24 62.28 31.37 -0.35 1995 9521 34.69 10.22 -0.20 32.49 3.57 1996 10761 13.02 8.98 -12.13 35.33 8.74 1997 10817 0.52 7.25 -19.27 36.46 3.20 1998 13652 26.21 13.17 81.66 41.35 13.41 1999 14438 5.76 4.84 -63.25 43.12 4.28 2000 15732 8.96 4.02 -16.94 45.08 4.55 2001 17362 10.36 3.77 -6.22 47.23 4.77 2002 18465 6.35 4.31 14.32 48.57 2.84 2003 19797 7.21 3.81 -11.60 46.5 -4.26 2004 21251 7.34 3.77 -1.05 45.12 -2.97

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2005 22828 7.42 4.25 12.73 44.08 -2.30 2006 24526 7.44 5.79 36.24 45.19 2.52 2007 30122 22.82 6.39 10.36 40.99 -9.29 2008 43288 43.71 8.32 30.20 43.79 6.83 2009 38093 -12.00 10.83 30.17 48.26 10.21 2010 40217 5.58 12.11 11.82 45.58 -5.55 2011 49695 23.57 8.87 -26.75 46.88 2.85 2012 64090 28.97 9.3 4.85 53.89 14.95 2013 71142 11.00 10.92 17.42 58.15 7.90 2014 66709 -6.23 6.37 -41.67 61.15 5.16 2015 66519 -0.28 5.88 -7.69 64.24 5.05 2016 70780 6.41 4.97 -15.48 67.24 4.67 CAGR 13.44 -4.02 4.41

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Influence of inflation and exchange rate on International remittance to Kerala was studied for the period from 1991-2016. The stationarity of the study variables was evaluated by Augmented Dickey- Fuller Test. The result of the test is presented in Table 4.

Table 4. 2 Result of Augmented Dickey-Fuller Test of International Remittance, Inflation and Exchange Rate

Level 1st difference t Prob. t Prob. r Remittance 0.641228 0.9880 -4.312162 0.0028 Inf Inflation -2.981025 0.0505 -6.450894 0.0000 Ex Exchange rate -0.462074 0.8831 -4.302426 0.0027

From Table 4.2 can be seen that all the variables are not stationery at level as the significance levels of t test are greater than 0.05. The significance levels of t test at the first difference of all variables became less than 0.05, which indicates that all the variables attained stationarity when they are converted to their first difference. The figure 4.1 results the growth of the study variables at level and first difference.

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R D(R)

80,000 16,000

70,000 12,000 60,000

50,000 8,000

40,000 4,000

30,000 0 20,000

10,000 -4,000

0 2 4 6 8 10 12 14 16 18 20 22 24 26 -8,000 2 4 6 8 10 12 14 16 18 20 22 24 26 INF D(INF)

14 8

6 12 4

10 2

0 8 -2

6 -4

-6 4 -8

2 -10 2 4 6 8 10 12 14 16 18 20 22 24 26 2 4 6 8 10 12 14 16 18 20 22 24 26 EX D(EX)

70 8

6 60

4

50 2

40 0

-2 30 -4

20 -6 2 4 6 8 10 12 14 16 18 20 22 24 26 2 4 6 8 10 12 14 16 18 20 22 24 26

Figure 4. 1 The growth of study variables at level and first difference.

Multiple regression analysis was conducted to find out the influence of Inflation and exchange rate on International remittance to Kerala as the relationship was considered to be unidirectional. First difference of International remittance was taken as dependent variable and the first difference of exchange rate and inflation are taken as independent variables. First difference of exchange rate and inflation of previous year is also included in the list of independent variables to find out the influence of past information about inflation and exchange rate. The coefficients of the regression model are presented in Table:4.3.

Table 4. 3 Coefficient of Regression Model for the influence of Inflation and exchange rate on International Remittance

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Dependent Variable: D(R)

Variable Coefficient Std. Error t-Statistic Prob.

C 3223.827 1176.571 2.740019 0.0130 D(EX) 468.6409 378.5667 1.237935 0.2308 D(INF) -18.16589 347.9643 -0.052206 0.9589 D(EX(-1)) -682.1107 363.7219 -1.875363 0.0762 D(INF(-1)) -7.178931 332.2997 -0.021604 0.9830

R-squared 0.200909 Mean dependent var 2787.417 Adjusted R-squared 0.032679 S.D. dependent var 4525.973 S.E. of regression 4451.408 Akaike info criterion 19.82288 Sum squared resid 3.76E+08 Schwarz criterion 20.06831 Log likelihood -232.8746 Hannan-Quinn criter. 19.88799 F-statistic 1.194251 Durbin-Watson stat 1.768255 Prob(F-statistic) 0.345426

Conclusion

From the table it can be seen that the R –squared of the regression model is 0.2009. The result indicates that 20 percent of the variation in the remittance is determined by the current and previous year’s exchange rate and inflation. But the adjusted R –Squared is only 0.0326 indicating that the effect of these variables are very low. The probability levels of regression coefficients are greater than 0.05 which also substantiate the weakness of the annual exchange rate and inflation on the annual international remittance to Kerala. Moreover, the significance level of F-statistic is above 0.05. From the result it can be concluded that there is no significant influence of exchange rate and inflation on the international remittance when considered at macro level in annual basis. Hence the results reject the null hypothesis that there is significant influence of inflation and exchange rate on international remittance to Kerala and accept the alternative hypothesis that there is no significant influence of inflation and exchange rate on international remittance to Kerala.

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