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Remittances and financial institutions: is there a causal linkage?

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  • Posso Alberto

    (RMIT University – Economics, 445 Swanston Street, Melbourne, Victoria 3000, Australia)

Abstract

The extant literature indicates that remittance inflows from developed to developing countries provide liquidity for domestic financial institutions, which aids in the development process. However, the reverse effect has been neglected. This paper tests whether more financial services and opportunities in the home country attract remittances to developing countries. It addresses this hypothesis using a dataset of 72 developing countries over the period 1997–2011. The paper finds evidence that remittance inflows are driven by increased availability of domestic financial services. In particular, the presence of microfinance institutions is found to be a key driver in stimulating migrant remittances. These findings, perhaps, suggest that remittance-sending migrants may not be altruistic and send remittances to maximize their own future income. Alternatively, the results suggest that microfinance organizations have been successful in attracting remittances by lowering transaction costs and proving linked services.

Suggested Citation

  • Posso Alberto, 2015. "Remittances and financial institutions: is there a causal linkage?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(2), pages 769-789, July.
    • Handle: RePEc:bpj:bejmac:v:15:y:2015:i:2:p:769-789:n:10
    DOI: 10.1515/bejm-2014-0116
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    References listed on IDEAS

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    1. Bichaka Fayissa & Christian Nsiah, 2010. "The Impact of Remittances on Economic Growth and Development in Africa," The American Economist, Sage Publications, vol. 55(2), pages 92-103, November.
    2. Hoddinott, John, 1994. "A Model of Migration and Remittances Applied to Western Kenya," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 459-476, July.
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    4. Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
    5. Banerjee, Biswajit, 1984. "The probability, size and uses of remittances from urban to rural areas in India," Journal of Development Economics, Elsevier, vol. 16(3), pages 293-311, December.
    6. Paresh Kumar Narayan & Seema Narayan & Sagarika Mishra, 2011. "Do Remittances Induce Inflation? Fresh Evidence from Developing Countries," Southern Economic Journal, Southern Economic Association, vol. 77(4), pages 914-933, April.
    7. Alberto Posso, 2012. "Remittances And Aggregate Labor Supply: Evidence From Sixty‐Six Developing Nations," The Developing Economies, Institute of Developing Economies, vol. 50(1), pages 25-39, March.
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    Cited by:

    1. Giorgio Fagiolo & Tommaso Rughi, 2023. "Exploring the Macroeconomic Drivers of International Bilateral Remittance Flows: A Gravity-Model Approach," Economies, MDPI, vol. 11(7), pages 1-27, July.
    2. Dominik Elsner & Katrin Oesingmann, 2016. "Migrant Remittances," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(03), pages 69-71, October.
    3. Adeabah, David & Asongu, Simplice & Andoh, Charles, 2021. "Remittances, ICT and pension income coverage: The international evidence," Technological Forecasting and Social Change, Elsevier, vol. 173(C).
    4. Rohan Best & Paul J. Burke, 2019. "Macroeconomic impacts of the 2010 earthquake in Haiti," Empirical Economics, Springer, vol. 56(5), pages 1647-1681, May.
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    6. Dominik Elsner & Katrin Oesingmann, 2016. "Migrant Remittances," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(3), pages 69-71, October.

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