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Do remittances promote financial development?

Author

Listed:
  • Aggarwal, Reena
  • Demirgüç-Kunt, Asli
  • Pería, Maria Soledad Martínez

Abstract

Workers' remittances to developing countries have become the second largest type of flows after foreign direct investment. This paper uses data on remittance flows to 109 developing countries during 1975-2007 to study the link between remittances and financial sector development. In particular, we examine the association between remittances and the aggregate level of deposits and credit intermediated by the local banking sector. This is an important question considering the extensive literature that has documented the growth-enhancing and poverty-reducing effects of financial development. We provide evidence of a positive, significant, and robust link between remittances and financial development in developing countries.

Suggested Citation

  • Aggarwal, Reena & Demirgüç-Kunt, Asli & Pería, Maria Soledad Martínez, 2011. "Do remittances promote financial development?," Journal of Development Economics, Elsevier, vol. 96(2), pages 255-264, November.
  • Handle: RePEc:eee:deveco:v:96:y:2011:i:2:p:255-264
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