Financial Development and Remittances in Africa and the Americas: A Panel Unit-Root Tests and Panel Cointegration Analysis
AbstractIn view of the sizable increase in recorded migrant workers’ remittances to developing countries from $70 billion in 2000 to $167 in 2005, this study investigates the long-run relationship between remittances and financial services development (FSD) and control variables including exchange rate (ERS), the size of migrant stock (MSK), the domestic per capita income (DPC) in the receiving country and foreign per capita income (FPC) in the main host country. We use a newly developed panel fully modified OLS (PFMOLS) on annual panel data over the 1985-2007 period for 44 countries consisting of 25 from Africa and 19 from the Americas. It is found that financial development, exchange rate stability, and the size of migrant stock have positive and statistically significant effect on remittances in both regions and in each of the regions. The study has important policy implications for the role of the financial services development through domestic credit expansion by the banking industry as well as increased competition among money transfer operations and exchange rate stability in order to promote the continuation of remittance inflows as a major source of economic growth in Africa and the Americas. The study also shows that there are regional differences in the impact and magnitude of the determinants of remittances.
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Bibliographic InfoPaper provided by Middle Tennessee State University, Department of Economics and Finance in its series Working Papers with number 201201.
Date of creation: Mar 2012
Date of revision:
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Web page: http://www.mtsu.edu/~berc/working/Economics_Working_Papers.html
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Workers’ Remittances; Transaction Cost Factors; Per Capita income; Unit-Root tests; Error Correction Model; PFMOOLS; Panel Data; Africa and the Americas;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-04-17 (Africa)
- NEP-ALL-2012-04-17 (All new papers)
- NEP-MAC-2012-04-17 (Macroeconomics)
- NEP-MIG-2012-04-17 (Economics of Human Migration)
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