Migrant Workers’ Remittances and Economic Growth: The Role of Financial Development

Aziz, M. Nusrate and Sen, Somnath and Sun, Puyang and Wu, Lichao (2015): Migrant Workers’ Remittances and Economic Growth: The Role of Financial Development.

Abstract

Although the growing importance of workers’ remittance in international capital flow is indubitable, it is apparent that some countries can take full advantage from this cash flow while the others cannot attain any significant benefit from it. Financial development, which may facilitate the conversion of workers’ remittance into a productive investment and thereby economic growth, can be considered to be one of the influential factors. However, there is no consensus in existing literature about the impact of workers’ remittance on economic growth in the presence of financial development. This study therefore examines whether financial development catalyses the transmission channel from workers’ remittance to economic growth. The system GMM and the fixed effects estimators are used for panel data analysis. Our analysis indicates that methods matter in studying the effect of workers’ remittance and financial development on growth. Estimates based on system GMM indicate that the workers’ remittance through financial development significantly accelerate economic growth. We also find that in the face of financial liberalization and trade openness the workers’ remittance significantly fosters economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: workers’ remittance, financial development, economic growth.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; F - International Economics > F2 - International Factor Movements and International Business > F24 - Remittances; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

References

Ahamada, Ibrahim and Coulibaly, Dramane (2011), How does financial development influence the impact of remittances on growth volatility?, Economic Modelling Vol. 28, pp. 2748–2760.

Acosta, P.A., Baerg, N.R., and Mandelman, F.S. (2009), Financial Development, Remittances, and Real Exchange Rate Appreciation, Economic Review, Federal Reserve Bank of Atlanta, Vol. 94, No. 1.

Aggarwal, R., Demirgüç-Kunt, A. and Peria, M.S.M. (2006), Do Workers’ Remittances Promote Financial Development?, The World Bank, World Bank Policy Research Working Paper 3957.

Amuedo-Dorantes, C. and Pozo, S. (2004), Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts, World Development, Vol. 32, pp. 1407-1417.

Arellano, Manuel and Bond, Stephen (1991), Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations, Review of Economic Studies, Vol. 58, No. 2 pp. 277-297.

Barajas, A., Chami, R., Fullenkamp, C., Gapen, M., and Montiel, P. (2009), Do Workers’ Remittances Promote Economic Growth?, IMF Working Paper, (WP/09/153).

Beck, Thorsten; Demirgüç-Kunt, Asli and Levine, Ross (2009), Financial Institutions and Markets across Countries and over Time – Data and Analysis, Policy Research Working Paper 4943, The World Bank.

Bekaert, Geert; Harvey, Campbell R., and Lundblad, Christian (2005) Does financial liberalization spur growth?, Journal of Financial Economics Vol. 77, pp. 3–55.

Catrinescu, N., Leon-Ledesma, M., Piracha, M., Quillin, B., (2006), Remittances, Institutions and Economic Growth, Institute for the study of labor (IZA Discussion Paper 2139).

Chami, R., Fullenkamp, C. and Jahjah, S., (2005), Are Immigrant Remittance Flows a Source of Capital for Development?, IMF Staff Papers; Vol. 52, Number 1.

Chowdhury, Mamta B. and Rabbi, Fazle (2014), Workers’ remittances and Dutch Disease in Bangladesh, Journal of International Trade & Economic Development, Vol. 23 (4), pp. 455-475.

Giuliano, Paola and Ruiz-Arranz, Marta (2005), Remittances, Financial Development, and Growth, IMF Working Paper (WP/05/234).

Giuliano, Paola and Ruiz-Arranz, Marta (2009), Remittances, Financial Development, and Growth, Journal of Development Economics, Vol. 90, Issue 1, 144-152

Glytsos, N.P. (2002), The Role of Migrant Remittances in Developemnt: Evidence from Mediterranean Countries, International Migration, Vol. 40, No. 1, pp. 1-25.

Jackman, M., Craigwell, R., and Moore, W., (2009), Economic volatility and remittances: evidence from SIDS, Journal of Economic Studies, Vol 36, No. 2, pp. 135-146.

León-Ledesma, M., and Piracha, M., (2004), International Migration and the Role of Remittances in Eastern Europe, International Migration. Vol. 42, issue 4, pp. 65-82.

Lopez, H., Molina, L., and Bussolo, M. (2007), Remittances and the real exchange rate, World Bank Policy Research Working Paper 4213.

Lueth, E. and Ruiz-Arranz, M. (2008), Determinants of Bilateral Remittance Flows, The B.E. Journal of Macroeconomics, Volume 8, Issue 1, Article 26.

Prasad, E., R. G. Rajan and A. Subramanian, (2006), Patterns of international capital flows and their implications for economic development, Federal Reserve Bank of Kansas City Proceedings, 119-158.

Rao B. Bhaskara and Hassan G. Mainul (2011), A panel data analysis of the growth effects of remittances, Economic Modelling vol. 28 pp. 701-709.

Russell, S.S. (1986), Remittances from international migration: a review in Perspective, World Development, Vol 14, No. 6, pp. 677-696.

Sargan, J. D. (1988), "Testing for Misspecification after Estimating Using Instrumental Variables", in Maasoumi, E. (ed.), Contributions to Econometrics: John Denis Sargan, Vol. 1 (Cambridge: Cambridge University Press).