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How Do Remittance Inflows Cause the Dutch Disease in the Financial Sector? The Role of Financial Risk and Human Capital

Author

Listed:
  • Zeeshan Khan

    (Faculty of Business, Curtin University Malaysia, Malaysia)

  • Syed Muhammad Faraz Raza

    (��School of Economics and Management, Wuhan University, Wuhan 430072, P. R. China)

  • Kangyin Dong

    (��School of International Trade and Economics, University of International Business and Economics, Beijing 100029, P. R. China)

  • Ilham Haouas

    (�College of Business, Abu Dhabi University, Abu Dhabi 59911, UAE)

Abstract

This research examines whether the remittance (REM) inflows cause Dutch disease and how it affects financial development (FD). The sample consists of the top global REM recipients, namely China, Egypt, India, Mexico and the Philippines, based on the latest World Bank data from 1990 to 2019. This study employs three econometric models to evaluate the REM inflows’ impact on FD. Using the cross-sectionally augmented autoregressive distributed lag (CS-ARDL) estimation technique, we reveal that the REM inflows have impeded FD and have triggered Dutch disease issues in the financial sectors. Furthermore, the estimation found a positive effect of economic growth, globalization, human capital and financial risks on FD across all models, both in the short and long runs. In addition, the interplay among the REM, human capital, and financial risks also facilitates FD. The study suggests that robust resource flows and price adjustment processes tackle the hazard of deteriorating FD and emphasize the Dutch disease’s effects on the top REM recipients.

Suggested Citation

  • Zeeshan Khan & Syed Muhammad Faraz Raza & Kangyin Dong & Ilham Haouas, 2023. "How Do Remittance Inflows Cause the Dutch Disease in the Financial Sector? The Role of Financial Risk and Human Capital," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-28, December.
    • Handle: RePEc:wsi:afexxx:v:18:y:2023:i:04:n:s2010495223400018
    DOI: 10.1142/S2010495223400018
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    Keywords

    Remittance inflows; financial development; Dutch disease effect; human capital index; financial risk index; CS-ARDL;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • G01 - Financial Economics - - General - - - Financial Crises

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