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Remittances and economic development in Lesotho: does financial sector development matter?

Author

Listed:
  • Babajide Fowowe

    (University of Ibadan)

  • Taofik M Ibrahim

    (Ahmadu Bello University)

Abstract

This paper conducts an empirical investigation of the effect of remittances on economic development in Lesotho, with particular attention paid to the role financial development plays in affecting this relationship. We made use of the fully-modified OLS (FMOLS) estimation technique to examine the long run relationship between remittances and development, and this helped to control for potential endogeneity bias. The results of econometric estimations revealed that remittances have had a significant positive effect on development. Also, the results showed that financial development, when measured by broad money exerts a positive effect on development in Lesotho. When remittances were interacted with financial development, the results showed a significant coefficient. This result indicates that remittances act a buffer for alleviating credit constraints of households and also acts to ameliorate inefficiencies of the financial system on poor households.

Suggested Citation

  • Babajide Fowowe & Taofik M Ibrahim, 2016. "Remittances and economic development in Lesotho: does financial sector development matter?," Economics Bulletin, AccessEcon, vol. 36(4), pages 2209-2224.
    • Handle: RePEc:ebl:ecbull:eb-16-00515
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    File URL: http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I4-P215.pdf
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    Citations

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    Cited by:

    1. Francois, John Nana & Ahmad, Nazneen & Keinsley, Andrew & Nti-Addae, Akwasi, 2022. "Heterogeneity in the long-run remittance-output relationship: Theory and new evidence," Economic Modelling, Elsevier, vol. 110(C).
    2. Courage Mlambo & Forget Kapingura, 2020. "Remittances and Economic Development: Evidence from SADC Countries?," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 8(4), pages 261-273.
    3. Peter Nderitu GITHAIGA, 2019. "Foreign Remittances, Private Sector Investment and Banking Sector Development," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 3(2), pages 85-112.

    More about this item

    Keywords

    remittances; economic development; financial development;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • G2 - Financial Economics - - Financial Institutions and Services

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