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Workers’ remittances and financial development: the case of South Asia

Author

Listed:
  • Hem C. Basnet

    (Methodist University)

  • Bishwa Koirala

    (The University of North Carolina at Pembroke)

  • Kamal P. Upadhyaya

    (University of New Haven)

  • Ficawoyi Donou-Adonsou

    (John Carroll University)

Abstract

South Asia is one of the top remittance recipient regions in the world. Remittances constitute a significant portion of GDP and have helped South Asian countries to minimize a shortage of foreign reserves. Remittances have been an important source of income for many families in the region too. Despite the significant role of remittances at the local as well as national level, the impact of remittances on financial development has not been adequately studied in the case of South Asia. This paper utilizes a panel cointegration approach to examine the impact of worker remittances on financial sector development in the top remittance recipient countries in South Asia. We find evidence of a long-run relationship between remittances and financial development. Our test results show support for a positive and significant impact of remittances on financial development. The Pooled Mean Group tests suggest that a 1% point increase in remittances increases the credit to the private sector by greater than 1% points. The positive and significant impact of remittances on financial development is robust. The results support the existence of bidirectional causality between remittances and financial development in the long run.

Suggested Citation

  • Hem C. Basnet & Bishwa Koirala & Kamal P. Upadhyaya & Ficawoyi Donou-Adonsou, 2021. "Workers’ remittances and financial development: the case of South Asia," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(2), pages 185-207, June.
  • Handle: RePEc:spr:inrvec:v:68:y:2021:i:2:d:10.1007_s12232-020-00359-5
    DOI: 10.1007/s12232-020-00359-5
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    More about this item

    Keywords

    Remittances; Financial development; Cointegration; South asia;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F30 - International Economics - - International Finance - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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