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Remittances, Financial Development, and Growth

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Author Info
Paola Giuliano
Marta Ruiz-Arranz

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Abstract

There has been little systematic empirical study on the relationship between remittances and growth. This paper attempts to examine this relationship. Using a newly constructed crosscountry of data series for remittances covering a large sample of developing countries, we relate the interaction between remittances and financial development and its impact on growth. We analyze how a country's capacity to use remittances and its effectiveness in doing so might be influenced by local financial sector conditions. Given the difficulty of borrowing in developing countries, we explore the hypothesis that remittances can substitute for a lack of financial development and hence promote growth. The empirical analysis shows that remittances can promote growth in less financially developed countries. This relationship controls for the endogeneity of remittances and financial development using a Generalized Method of Moments (GMM) approach, does not depend on the particular measure of financial sector development used, and is robust to a number of sensitivity tests.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/234.

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Length: 39 pages
Date of creation: 23 Dec 2005
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Handle: RePEc:imf:imfwpa:05/234

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Keywords: Workers remittances ; Financial systems ; Economic growth ; Investment ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Garcia-Fuentes, Pablo A. & Kennedy, P. Lynn, 2009. "Remittances and economic growth in Latin America and the Caribbean: The Impact of the human capital development," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46751, Southern Agricultural Economics Association. [Downloadable!]
  2. Demirguc-Kunt, Asli & Lopez Cordova, Ernesto & Martinez Peria, Maria Soledad & Woodruff, Christopher, 2009. "Remittances and banking sector breadth and depth : evidence from Mexico," Policy Research Working Paper Series 4983, The World Bank. [Downloadable!]
  3. Andreas Billmeier & Isabella Massa, 2007. "What Drives Stock Market Development in the Middle East and Central Asia--Institutions, Remittances, or Natural Resources?," IMF Working Papers 07/157, International Monetary Fund. [Downloadable!]
  4. Erik Lueth & Marta Ruiz-Arranz, 2007. "A Gravity Model of Workers' Remittances," IMF Working Papers 06/290, International Monetary Fund. [Downloadable!]
  5. Pablo A. Acosta & Emmanuel K.K. Lartey & Federico S. Mandelman, 2007. "Remittances and the Dutch disease," Working Paper 2007-08, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  6. Aggarwal, Reena & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2006. "Do workers'remittances promote financial development ?," Policy Research Working Paper Series 3957, The World Bank. [Downloadable!]
  7. Michael T. Gapen & Ralph Chami & Thomas F. Cosimano, 2006. "Beware of Emigrants Bearing Gifts: Optimal Fiscal and Monetary Policy in the Presence of Remittances," IMF Working Papers 06/61, International Monetary Fund. [Downloadable!]
  8. Matteo Bugamelli & Francesco Paternò, 2008. "Output growth volatility and remittances," Temi di discussione (Economic working papers) 673, Bank of Italy, Economic Research Department. [Downloadable!]
  9. Ritha Sukadi, 2009. "Microfinance Institutions (MFIs) on the Remittances Market: Money Transfer Activity and Savings Mobilisation," Working Papers CEB 09-022.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
  10. Garbis Iradian, 2007. "Rapid Growth in Transition Economies: Panel Regression Approach," IMF Working Papers 07/170, International Monetary Fund. [Downloadable!]
  11. Ziesemer, Thomas, 2006. "Worker Remittances and Growth: The Physical and Human Capital Channels," UNU-MERIT Working Paper Series 020, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
  12. Smita Wagh & Sanjeev Gupta & Catherine A. Pattillo, 2007. "Impact of Remittances on Poverty and Financial Development in Sub-Saharan Africa," IMF Working Papers 07/38, International Monetary Fund. [Downloadable!]
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