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Migrants' Remittances and financial Development: Macro- and Micro-level Evidence of a Perverse Relationship

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  • Richard P C Brown
  • Fabrizio Carmignani
  • Ghada Fayad

Abstract

Financial development and financial literacy in developing countries are commonly identified as important conditions for attaining higher rates of investment and economic growth. It has also been argued that migrants’ remittances stimulate financial development in the receiving economy, contributing indirectly to economic growth. Past research has been based almost exclusively on the macro-level relationship between remittances and financial depth. To explore this relationship further, we combine macroeconomic analysis using a cross-country panel dataset with micro-level analysis of households’ uses of financial sector services. From the macroeconomic analysis we find evidence of a negative relationship between remittances and financial deepening in developing countries, once we control for the countries’ legal origin. At the microeconomic level we use household survey data from a recent study of migrants’ remittances in two transition economies, resource rich and relatively more financially developed Azerbaijan, and Kyrgyzstan, to test the relationship between remittances and financial literacy among remittance-receiving households. While we find some supportive evidence, albeit weak, for Kyrgyzstan, in Azerbaijan, the relatively more financially-developed economy, we uncover a strong perverse relationship. Remittances appear to deter the use of formal banking services. Possible reasons are explored and areas for further investigation identified.

Suggested Citation

  • Richard P C Brown & Fabrizio Carmignani & Ghada Fayad, 2011. "Migrants' Remittances and financial Development: Macro- and Micro-level Evidence of a Perverse Relationship," OxCarre Working Papers 059, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:059
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    Cited by:

    1. Nephil Matangi Maskay & Sven Steinkamp & Frank Westermann, 2014. "On Remittances, Foreign Currency Exposure and Credit Constraints: Evidence from Nepal," CESifo Working Paper Series 5053, CESifo Group Munich.
    2. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies : a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland, Institute for Economies in Transition.
    3. Anwar, Sajid & Cooray, Arusha, 2015. "Financial flows and per capita income in developing countries," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 304-314.
    4. Tamar Khitarishvili, 2016. "Gender Dimensions of Inequality in the Countries of Central Asia, South Caucasus, and Western CIS," Economics Working Paper Archive wp_858, Levy Economics Institute.
    5. Unbreen Qayyum & Muhammad Nawaz, 2014. "Remittances and Economic Growth: The Role of Financial Development," PIDE-Working Papers 2014:100, Pakistan Institute of Development Economics.
    6. Gloria Clarissa O. Dzeha, 2016. "The decipher, theory or empirics: a review of remittance studies," African Journal of Accounting, Auditing and Finance, Inderscience Enterprises Ltd, vol. 5(2), pages 113-134.
    7. repec:bla:worlde:v:40:y:2017:i:11:p:2354-2377 is not listed on IDEAS
    8. Giulia Bettin & Alberto Zazzaro, 2016. "The Impact of Natural Disasters on Remittances to Low- and Middle-income Countries," CSEF Working Papers 431, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    9. Mohammad Reza Farzanegan & Sherif Maher Hassan, 2016. "How does the Flow of Remittances Affect the Trade Balance of the Middle East and North Africa?," CESifo Working Paper Series 6172, CESifo Group Munich.
    10. Mbaye, Linguère Mously, 2015. "Remittances and Credit Markets: Evidence from Senegal," IZA Discussion Papers 9340, Institute for the Study of Labor (IZA).
    11. Nephil Matangi Maskay, Ph.D. & Sven Steinkamp, Ph.D. & Frank Westermann, Ph.D., 2015. "The Impact of Remittances on Central Bank Balance Sheets and Inflation in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 27(2), pages 1-18, October.
    12. Cooray, Arusha, 2012. "Migrant remittances, financial sector development and the government ownership of banks: Evidence from a group of non-OECD economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 936-957.
    13. Christian Ambrosius, 2016. "Remittances and Financial Access: Is There Really a Link and for Whom? Evidence from Mexican Household Data," The World Economy, Wiley Blackwell, vol. 39(7), pages 964-982, July.
    14. Mbaye Linguère Mously, 2016. "Working Paper 232 - Remittances and Access to rural credit markets Evidence from Senegal," Working Paper Series 2325, African Development Bank.
    15. repec:eee:riibaf:v:42:y:2017:i:c:p:1413-1427 is not listed on IDEAS
    16. Adolfo Barajas & Ralph Chami & Christian H Ebeke & Anne Oeking, 2016. "What’s Different about Monetary Policy Transmission in Remittance-Dependent Countries?," IMF Working Papers 16/44, International Monetary Fund.
    17. repec:eee:quaeco:v:66:y:2017:i:c:p:192-201 is not listed on IDEAS

    More about this item

    Keywords

    remittances; financial development; financial literacy; Azerbaijan; Kyrgyzstan;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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