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Remittances and economic growth nexus: Do financial development and investment act as transmission channels? An ARDL bounds approach

Author

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  • Najibullah, Syed
  • Masih, Mansur

Abstract

The study seeks to investigate the causal links between economic growth and remittances through two specific transmission channels, namely financial development and investment. Using Bangladesh as a case study, the study employs autoregressive distributed lag (ARDL) approach to cointegration proposed by Pesaran et al. (2001). Based on a time series data over the period 1977–2013, the findings reveal no long term lead-lag relationship between economic growth and remittances. However, the short term relation exists between remittances and investment. Investment also stimulates economic growth. A unidirectional transmitting channel through investment can be identified in the short run. The financial development was found to be weak in the growth remittances nexus and this shows the presence of a missing link between investment and financial development. This might happen due to financial exclusion and inflow of remittances through informal unaccounted channel. Policy makers should focus on financial sector deepening to promote financial inclusion. Moreover, creating awareness to promote flow of remittances through formal channel should get priority. For the future researchers, the inclusion of microfinance sector as a transmission channel might provide significant findings as the remittances in fact represent the people at the bottom of the pyramid, where microfinance sector has a strong presence unlike the formal financial sector.

Suggested Citation

  • Najibullah, Syed & Masih, Mansur, 2015. "Remittances and economic growth nexus: Do financial development and investment act as transmission channels? An ARDL bounds approach," MPRA Paper 65837, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65837
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    File URL: https://mpra.ub.uni-muenchen.de/65837/1/MPRA_paper_65837.pdf
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    References listed on IDEAS

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    Keywords

    remittances; economic growth; ARDL;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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