ASSESSMENT OF THE LONG-TERM RELATIONSHIP BETWEEN RA PERSONAL TRANSFERS-ECONOMIC GROWTH USING THE VEC MODEL

Abstract

The article evaluates the macroeconomic impact of personal transfers from abroad in Armenia. The analysis is based on the quarterly data of macroeconomic indicators for the period 1996–2024. The data sources are the databases of the Central Bank of Armenia and the Statistical Committee of Armenia. Hypotheses have been proposed, and to test them, regression and Vector Error Correction (VEC) models were constructed. The Granger causality test showed that there is a unidirectional causality—personal transfers from abroad are the cause of changes in economic growth, but the reverse is not true. The Johansen cointegration test revealed that there is a long-term relationship between personal transfers from abroad and economic growth in Armenia. According to the results of the VEC model, a 1% increase in personal transfers from abroad contributes to a 0.42% increase in Armenia's real GDP in the long run, while a 1% increase in the export of goods and services contributes to a 0.35% increase. An increase in the rate of economic growth in Armenia leads to a reduction in personal transfers from abroad. A 1% increase in real GDP results in a 1.08% decrease in external personal transfers after 4 quarters, 1.05% after 5 quarters, and 1.22% after 6 quarters. According to the results of the regression and VEC models, personal transfers from abroad do not have a significant short-term impact on Armenia’s economic growth. The results of the research can be useful in the development of Armenia's macroeconomic policy.