The Role of Remittances in Hampering Economic Growth in Lebanon

Abstract

Remittances from migrants not only represent one of the most stable sources of foreign exchange earnings but have also been the primary capital inflow for Lebanon throughout much of the post-war period. Despite their significant role, limited empirical studies exist on the impact of these remittances on economic growth in Lebanon. This study aimed to address this gap by investigating the effects of remittances on Lebanon's public debt in foreign currency between 2002 and 2022. The ARDL estimation technique was employed to explore the long-term relationships among the chosen variables. The findings revealed a significant positive long-term association, indicating that remittances substantially influenced Lebanon’s public debt dynamics. The analysis also identified important short-term effects of central bank foreign currency reserves on public debt. Furthermore, the study highlighted a noticeable misallocation of remittances into unproductive sectors, suggesting a crowding out effect where remittances failed to enhance productive investment and economic capacity, thereby undermining long-term economic development and compromising the growth benefits of these foreign inflows.