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Remittances and financial development in transition economies

Author

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  • Jakhongir Kakhkharov

    (Griffith University)

  • Nicholas Rohde

    (Griffith University)

Abstract

Because of their sheer size and remarkable growth in recent years, remittances to developing and transition economies have attracted the attention of policy-makers and scholars. One region in which remittances have been growing and having a significant impact on local economies is Central and Eastern Europe and the former Soviet Union. The paper uses data on remittance flows to twenty-seven countries of the former Communist bloc during 1996–2013 and three distinct empirical econometric approaches to study the impact of remittances on financial systems. In particular, the research focuses on the link between remittances and various types of credits and deposits, using dynamic system generalised method of moments estimators to address the issue of reverse causality and allow for dynamic effects. This issue is important for the region, as economic and finance theory documents the growth-enhancing and poverty-reducing effects of financial development. The paper provides evidence of a robust, significant, and positive link between remittances and financial development. The link is especially strong in the ex-Soviet Union and in the case of private credit. The contribution of the present research to the literature is threefold: it is the first study to focus on a relatively homogeneous set of transition countries; the region it addresses is of particular interest because financial development in the region had to start before full-fledged formation of a market economy’s financial institutions; and it applies novel, high-quality data on bilateral remittances from Russia to a subsample of transition countries in the former Soviet Union.

Suggested Citation

  • Jakhongir Kakhkharov & Nicholas Rohde, 2020. "Remittances and financial development in transition economies," Empirical Economics, Springer, vol. 59(2), pages 731-763, August.
  • Handle: RePEc:spr:empeco:v:59:y:2020:i:2:d:10.1007_s00181-019-01642-3
    DOI: 10.1007/s00181-019-01642-3
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    2. Md. Ahasan Ul Haque & Md. Golam Kibria & Md. Muhaiminul Islam Selim, 2021. "Effects of Foreign Aid and Remittances Flows on Saving and Investment in Developing South Asia: Panel Data Study," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 7(2), pages 21-27, 06-2021.
    3. Farrukh Nawaz Kayani, 2022. "Analyzing the Impact of Foreign Remittances uponPoverty: A Case of Uzbekistan from Central Asia," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 1-6.
    4. Saptono Prianto Budi & Mahmud Gustofan & Lei Li-Fen, 2022. "Do international remittances promote poverty alleviation? Evidence from low- and middle-income countries," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 13(1), pages 1-20, January.
    5. Georgeta Soava & Anca Mehedintu & Mihaela Sterpu & Mircea Raduteanu, 2020. "Impact of Employed Labor Force, Investment, and Remittances on Economic Growth in EU Countries," Sustainability, MDPI, vol. 12(23), pages 1-31, December.
    6. Kim, Jounghyeon, 2021. "Financial development and remittances: The role of institutional quality in developing countries," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 386-407.
    7. Boburmirzo Ibrokhimov & Rashid Javed & Mazhar Mughal, 2023. "Migrants remittances and fertility in the Post-Soviet states," Post-Communist Economies, Taylor & Francis Journals, vol. 35(6), pages 574-596, August.
    8. Jakhongir Kakhkharov & Muzaffarjon Ahunov, 2022. "Do migrant remittances affect household spending? Focus on wedding expenditures," Empirical Economics, Springer, vol. 63(2), pages 979-1028, August.
    9. Çetin, Murat & Sarıgül, Sevgi Sümerli & Işık, Cem & Avcı, Pınar & Ahmad, Munir & Alvarado, Rafael, 2023. "The impact of natural resources, economic growth, savings, and current account balance on financial sector development: Theory and empirical evidence," Resources Policy, Elsevier, vol. 81(C).
    10. Mantu Kumar Mahalik & John Nkwoma Inekwe & Kuntal K. Das & Umakant Dash & Augustine C Arize, 2022. "Does the Pattern of Age Dependency Matter in the Promotion of Financial Development in an Emerging Economy?," Working Papers in Economics 22/06, University of Canterbury, Department of Economics and Finance.

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    More about this item

    Keywords

    Remittances; Financial development; International migration;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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