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The Long-Run Impact of Financial Development on Remittances: Evidence from Developing Countries

Author

Listed:
  • Christian Nsiah

    (Faculty of Finance and Economics, School of Business, Baldwin Wallace University, U.S.A.)

  • Bichaka Fayissa

    (Faculty of Economics and Finance, Middle Tennessee State Unviersity, U.S.A.)

  • Chen Wu

    (Faculty of Economics and Finance, Southeast Missouri State University, U.S.A.)

Abstract

We investigate the long-run relationship between remittances and the overall as well as the ifferent aspects of financial sector development including markets, institutions, access, depth, and efficiency for 85 countries from Africa, the Americas, Asia, and the Middle East for the years between 1995 and 2014. We first check for stationarity, co-integration, and the direction of causality. We find that all employed variables are stationary in levels and first difference, apart from the case of the host country per capita income which is only stationary in first difference. Our cointegration test results indicate robust evidence of a long-run relationship between the remittances and the covariates. Thus, establishing a case for the long run relationship between remtitances and our covariates including financial services development. In terms of causality between remittances and financial services development, we find a mixture of results ranging from bi-directional, unidirectional, and no causality at all between remittances and the financial services development, depending on the region and type of financial services development in question. For the long-run impacts, we find that all the determinants are important including the financial services development. But the size, direction, and significance of the impact of financial services development and its different components differ by the type of financial development measures and region under consideration. Our estimate of the long-run elasticity of the financial development measures of remittances provides mixed results: it is either significantly positive, insignificant, or negative depending on the regions and measure of financial development employed. Further, we find that the migrant stock, exchange rate volatility, home and host country per capita income, and inflation all play significant roles in the determination of the remittance flows into a given country.

Suggested Citation

  • Christian Nsiah & Bichaka Fayissa & Chen Wu, 2019. "The Long-Run Impact of Financial Development on Remittances: Evidence from Developing Countries," Review of Economics & Finance, Better Advances Press, Canada, vol. 16, pages 31-46, May.
    • Handle: RePEc:bap:journl:190203
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    References listed on IDEAS

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    Cited by:

    1. Angana Parashar SARMA & Muniyor KRISHNA, 2024. "Causal Nexus Between Remittance Inflow And Its Determinants, 1998-2020: Evidence From The South And Southeast Asian Lmics," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 24(1), pages 97-120.
    2. Ebenezer Olamide & Kanayo Ogujiuba & Andrew Maredza, 2022. "Exchange Rate Volatility, Inflation and Economic Growth in Developing Countries: Panel Data Approach for SADC," Economies, MDPI, vol. 10(3), pages 1-19, March.
    3. Temitayo Olumide Olaniyan, 2019. "Interactive Effects of Remittances and Financial Sector Development on Economic Growth in Nigeria," Remittances Review, Remittances Review, vol. 4(1), pages 19-39, May.

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    More about this item

    Keywords

    Remittances; Financial development; Causality; Error correction model (ECM);
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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