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A Note On The Relationship Linking Remittances And Financial Development In Pakistan

Author

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  • KHURSHID, Adnan

    (College of Economics, Department of Finance, Ocean University of China, Qingdao 266100, China)

  • KEDONG, Yin

    (College of Economics, Department of Finance, Ocean University of China, Qingdao 266100, China)

  • CĂLIN, Adrian Cantemir

    (Institute for Economic Forecasting, Romanian Academy, Romania)

  • POPOVICI, Oana Cristina

    (Institute for Economic Forecasting, Romanian Academy, Romania)

Abstract

We study the relationship among remittances, financial development and growth using the system GMM, full sample Granger causality test and the sub-sample rolling window estimation approach for the case of Pakistan. This paper uses annual and monthly series that cover the 1992 to 2015 interval. The results of the System GMM reveal that remittances negatively affect financial development and growth in the cases in which they are not directed towards investments. In theory, remittances stabilize financial institutions and accelerate the growth process. The full-sample causality results find a unidirectional causal relationship running from financial development to remittances. The parameter stability test hints at evidence of the presence of structural changes. Therefore, this investigation relied on a bootstrap subsample rolling window causality approach that has the unique characteristic of identifying time variation in the sub-sample data. Moreover, the rolling sum of coefficients exhibits the magnitude and direction of the causal relationship. The results of the dynamic sub-sample causality approach show that there is a bidirectional causal relation between remittances and financial development. This sub-sample is correlated with relevant economic occurrences, fact that demonstrates that the results are not a simple statistical artefact.

Suggested Citation

  • KHURSHID, Adnan & KEDONG, Yin & CĂLIN, Adrian Cantemir & POPOVICI, Oana Cristina, 2017. "A Note On The Relationship Linking Remittances And Financial Development In Pakistan," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 21(4), pages 6-26.
  • Handle: RePEc:vls:finstu:v:21:y:2017:i:4:p:6-26
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    References listed on IDEAS

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    Cited by:

    1. Adnan KHURSHID & Yin KEDONG & Adrian Cantemir CALIN & Cristina Georgiana ZELDEA & Sun QIANG & Duan WENQI, 2020. "Is the Relationship between Remittances and Economic Growth Influenced by the Governance and Development of the Financial Sector? New Evidence from the Developing Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 37-56, March.
    2. Sun QIANG & Adnan KHURSHID & Adrian Cantemir CALIN & Khalid KHAN, 2019. "Do Remittances Contribute to the Development of Financial Institutions? New Evidence from the Developing World," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 78-97, June.

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    More about this item

    Keywords

    Remittances; Financial development; Bootstrap rolling window; Granger Causality;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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