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Financial Development and Remittances in Africa and the Americas: A Panel Unit-Root Tests and Panel Cointegration Analysis

Author

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  • Bichaka Fayissa
  • Christian Nsiah

Abstract

In 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.

Suggested Citation

  • Bichaka Fayissa & Christian Nsiah, 2012. "Financial Development and Remittances in Africa and the Americas: A Panel Unit-Root Tests and Panel Cointegration Analysis," Working Papers 201201, Middle Tennessee State University, Department of Economics and Finance.
    • Handle: RePEc:mts:wpaper:201201
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    References listed on IDEAS

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    Cited by:

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    3. Judit Kiss, 2023. "The political economy of remittances:the case of Sub-Saharan Africa," IWE Working Papers 270, Institute for World Economics - Centre for Economic and Regional Studies.
    4. Gazi M. Hassan & Mark J. Holmes, 2013. "Remittances and the real effective exchange rate," Applied Economics, Taylor & Francis Journals, vol. 45(35), pages 4959-4970, December.
    5. Wadad Saad & Hassan Ayoub, 2019. "Remittances, Governance and Economic Growth: Empirical Evidence from MENA Region," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(8), pages 1-1, August.
    6. Imad El Hamma, 2016. "Linking Remittances with Financial Development and Institutions: A Study from Selected MENA Countries," GREDEG Working Papers 2016-38, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    7. Syed Jawad Hussain SHAHZAD & Noureen ADNAN & Sajid ALI & Naveed RAZA, 2014. "Impact Of Remittances On Financial Development In South Asia," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 14, pages 11-29, December.
    8. Courage Mlambo, 2021. "The Impact of Port Performance on Trade: The Case of Selected African States," Economies, MDPI, vol. 9(4), pages 1-18, September.
    9. Louis Bernard Tchekoumi & Patrick Danel Nya, 2023. "Remittances and economic growth: What lessons for the CEMAC zone?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2191448-219, December.
    10. Imad El Hamma, 2018. "Migrant Remittances and Economic Growth: The Role of Financial Development and Institutional Quality," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 503-504, pages 123-142.

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    More about this item

    Keywords

    Workers’ Remittances; Transaction Cost Factors; Per Capita income; Unit-Root tests; Error Correction Model; PFMOOLS; Panel Data; Africa and the Americas;
    All these keywords.

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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