Remittances and financial development: empirical evidence from heterogeneous panel of countries

Mita Bhattacharya (Lead / Corresponding author), John Inekwe, Sudharshan Reddy Paramati

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    Abstract

    Remittances are the second largest source of external finance after foreign direct investment in the developing economies. In this study, we analyse the role of incoming remittances on financial development for 57 highest remittance recipient economies. A long run equilibrium relationship is established between remittances and three alternative indicators of financial development. Estimates from the dynamic system-generalized method of moments reflect lower elasticity values for developing countries compared to the developed ones. Our findings are robust across countries, and highlight the necessity for strengthening institutional set-ups to increase the inflow of remittances, which will enhance financial development across countries. The role of foreign direct investment is found to be significant in most cases.

    Original languageEnglish
    Pages (from-to)4099-4112
    Number of pages14
    JournalApplied Economics
    Volume50
    Issue number38
    Early online date24 Feb 2018
    DOIs
    Publication statusPublished - 24 Feb 2018

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    Keywords

    • cross-sectional dependence
    • financial development
    • heterogeneity
    • panel cointegration
    • Remittances

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