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Remittances, Financial Development, and Growth

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  • Marta Ruiz-Arranz
  • Paola Giuliano

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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Bibliographic Info

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

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Length: 39
Date of creation: 01 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/234

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Keywords: Investment; Workers remittances; Financial systems; Economic growth; remittances; impact of remittances; migration; remittance; statistics; impact of remittances on growth; correlations; correlation; effect of remittances; equation; remittance flows; standard errors; migrant; effects of remittances; capital flows; confidence interval; autocorrelation; outliers; role of remittances; workers ? remittances; financial statistics; bootstrap; recipients of remittances; impact of remittances on investment; time series; effect of remittances on growth; send remittances; migrants ? remittances; migrant remittances; money transfer; confidence intervals; data on remittance; development impact of remittances; independent variables; statistic; lagrange multiplier tests; flow of remittances; significance level; importance of remittances; instrumental variable; descriptive statistics; immigrant remittance; econometrics; emigrant remittances; international remittances; standard deviation; empirical exercise; equations; logarithm; data on remittance flows; data on remittances;

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