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The role of formal and informal remittances as the determinants of formal and informal financial services

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  • Khiev Virak

    (Tomas Bata University in Zlin, Czechia)

  • Yuriy Bilan

    (Vytautas Magnus University, Lithuania)

Abstract

Research background: The choice of financial services and remittances are important as they influence the livelihood of remittance recipients, who are mostly poor and financially excluded. In literature, extensive evidence suggests a positive impact of the size of remittances on access to financial inclusion and financial development of remittance-recipient countries. However, a concern of such studies is that they might provide a biased outcome as the available data of remittances tend to be formal, whereas informal remittances are difficult to observe. Hence, their evidence might not be applicable in developing countries where remittance transfer via informal channels is very popular. Purpose of the article: The main objective of this study is to examine the effect of the remittance channel (formal and informal) on the choice of formal, informal financial services of credit and savings of remittance recipients. Methods: As our dependent variable is a financial service which is a categorical variable (formal and informal), the paper will employ a multinomial logistic regression model to estimate the impact. The data employed in this analysis is from the Finscope survey conducted in Myanmar in 2013 and 2018. Myanmar is the best context for our study, as it is one of a big migrant-sending countries and a developing country whose financial sector is significantly underdeveloped. Findings & value added: Our findings show that formal remittances promote the use of formal financial services such as credit and savings. However, there is no evidence regarding women recipients` informal channels and formal financial services. Our evidence also suggests there is a need for the government to encourage migrant workers to transform informal remittances into formal ones by removing the barriers of formal remittance channels to promote the use of formal credit and saving among remittance-recipients who are poor and financially excluded.

Suggested Citation

  • Khiev Virak & Yuriy Bilan, 2022. "The role of formal and informal remittances as the determinants of formal and informal financial services," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(3), pages 727-746, September.
    • Handle: RePEc:pes:ierequ:v:17:y:2022:i:3:p:727-746
    DOI: 10.24136/eq.2022.025
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    References listed on IDEAS

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    More about this item

    Keywords

    formal financial services; informal financial services; remittance channels; financial inclusion;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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