Financial Development, Remittances and Economic Growth: Evidence Using a Dynamic Panel Estimation

This study examines how remittances can influence economic growth under different levels of financial development. Using a dynamic panel estimation of 33 top remittance-recipient developing countries from 1979 to 2011, the results suggest that financial development neither works as a substitute nor a complement for the remittance-growth nexus. While remittances are effective in promoting economic growth, the influence of financial variables is found to be insignificant. More developed financial systems may attract more remittances; however, the interaction effect of financial development and remittances is not growth enhancing. Promoting financial literacy, reducing the cost of sending remittances through banks and encouraging the overall use of formal financial institutions may induce a stronger remittance-growth nexus.