Factors Affecting Traditional and Modern Services Imports in an Emerging Economy: The Role of Real Exchange Rate and Remittances Inflows.

This article investigates the impact of the real effective exchange rate and remittance inflows on total, traditional, and modern services imports in India from 1990 to 2020, employing the autoregressive distributed lag (ARDL) bound testing approach. Controlling for banking sector development, stock market development, and net foreign direct investment (FDI) inflows, the study finds that both the real exchange rate and remittance inflows negatively affect all categories of service imports. Banking sector development and stock market development positively influence total and traditional services imports, while for modern services imports, banking sector development has a negative effect and stock market development a positive one. Additionally, net FDI inflows positively impact modern services imports but negatively affect total and traditional services imports. The findings suggest that Indian policymakers should address the adverse effects of exchange rate fluctuations and remittance inflows on service imports and promote financial sector growth to support service import demand.