Non-Linear Effect of Remittances on Banking Sector Development: Panel Evidence from Developing Countries

Abstract

This paper examines the impact of remittances on financial sector development in a panel of 19 developing countries. Contrary to previous studies that focus on mean effects, it uses quantile regression methodology to examine whether the effect of remittances on financial development is the same for less and more financially developed countries. The results point out that remittances promote financial development only in less financially developed countries. Further, the effect of income is positive and larger in less financially developed countries. Trade openness is positively related to financial development while inflation and urbanization are negatively related to it.