Impacts of remittances on financial development
ISSN: 0144-3585
Article publication date: 26 February 2020
Issue publication date: 6 May 2020
Abstract
Purpose
The purpose of this paper is to examine the impacts of international remittances on financial development in developing countries.
Design/methodology/approach
The focus is on a panel of 124 developing countries for the period 1990–2015. The empirical evidence is based on the instrumental variable-fixed effect model.
Findings
Results obtained in this study indicate that a 10 percent increase in the remittance to GDP ratio leads to 1.7 percent increase in domestic credit to private sector, 1.9 percent increase in bank credit, 1.2 percent increase in bank deposit, and 0.8 percent increase in liquid liabilities. The positive impact of remittances on financial development in developing countries is particularly important because financial development fosters long-run growth and reduces poverty.
Originality/value
To address the endogeneity of remittances, the study estimates bilateral remittances and use them to create weighted gross national income per capita and real interest rates of remittance-sending countries. To the best of the author’s knowledge, this is the first study to assess the endogeneity of remittances in this way.
Keywords
Citation
Azizi, S. (2020), "Impacts of remittances on financial development", Journal of Economic Studies, Vol. 47 No. 3, pp. 467-477. https://doi.org/10.1108/JES-01-2019-0045
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited