This study examines the impact of remittances on financial development in selected West African countries over the period from 1980 to 2017. Contrary to previous panel studies which relied on standard panel estimators, it uses an estimation method which controls both parameter heterogeneity and cross-section dependence among countries. Remittance inflows were found to reduce domestic credit to private sector whereas they contribute to increasing money supply in the long run. Country-level results reveal, however, considerable heterogeneity across countries.
Adams, R. and Page, J. (2003) International Migration, Remittances and Poverty in Developing Countries. World Bank Policy Research Working Paper 3179.
Edwards, A. and Ureta, M. (2003) International Migration, Remittances and Schooling: Evidence from El Salvador. Journal of Economic Development, 72, 429-461. https://doi.org/10.1016/S0304-3878(03)00115-9
Chami, R., Fullenkamp, C. and Samir, J. (2003) Are Immigrant Remittance Flows a Source of Capital for Development. International Monetary Fund Working Papers 03/189, IMF, Washington DC. https://doi.org/10.5089/9781451859638.001
Maimbo, S. and Ratha, D. (2005) Remittances: Development Impact and Future Prospects. World Bank, Washington DC. https://doi.org/10.1596/0-8213-5794-8
World Bank (2006) Global Economic Prospects: Economic Implications of Remittances and Migration. World Bank, Washington DC.
Azam, K.M., Hassan, S. and Khairuzzaman (2013) Corruption, Workers Remittances, FDI and Economic Growth in Five South and South East Asian Countries: A Panel Data Approach. Middle East Journal of Scientific Research, 15, 184-190.
Driffield, N. and Jones, C. (2013) Impact of FDI, ODA and Migrant Remittances on Economic Growth in Developing Countries: A Systems Approach. European Journal of Development Research, 25, 173-196. https://doi.org/10.1057/ejdr.2013.1
Nsiah, C. and Fayissa, B. (2013) Remittances and Economic Growth in Africa, Asia, and Latin American-Caribbean Countries: A Panel Unit Root and Panel Cointegration Analysis. Journal of Economics and Finance, 37, 424-441. https://doi.org/10.1007/s12197-011-9195-6
Beyene, B.M. (2014) The Effects of International Remittances on Poverty and Inequality in Ethiopia. Journal of Development Studies, 50, 1380-1396. https://doi.org/10.1080/00220388.2014.940913
Imai, K.S., Gaiha, R., Ali, A. and Kaicker, N. (2014) Remittances, Growth and Poverty: New Evidence from Asian Countries. Journal of Policy Modeling, 36, 524-538. https://doi.org/10.1016/j.jpolmod.2014.01.009
Nwaogu, U.G. and Ryan, M.J. (2015) FDI, Foreign Aid, Remittance and Economic Growth in Developing Countries. Review of Development Economics, 19, 100-115. https://doi.org/10.1111/rode.12130
Meyer, D. and Shera, A. (2017) The Impact of Remittances on Economic Growth: An Econometric Model. Economia, 18, 147-155. https://doi.org/10.1016/j.econ.2016.06.001
Eggoh, J., Bangake, C. and Semedo, G. (2019) Do Remittances Spur Economic Growth? Evidence from Developing Countries. Journal of International Trade and Economic Development, 28, 391-418. https://doi.org/10.1080/09638199.2019.1568522
Gupta, S., Pattillo, C. and Wagh, S. (2009) Impact of Remittances on Poverty and Financial Development in Sub-Saharan Africa. World Development, 37, 104-115. https://doi.org/10.1016/j.worlddev.2008.05.007
Aggarwal, R., Demirguc-Kunt, A. and Martinez Peria, M.S. (2011) Do Remittances Promote Financial Development? Journal of Development Economics, 96, 255-264. https://doi.org/10.1016/j.jdeveco.2010.10.005
Nyamongo, E.M., Misati, R., Kipyegon, L. and Ndirangu, L. (2012) Remittances, Financial Development and Economic Growth in Africa. Journal of Economics and Business, 64, 240-260. https://doi.org/10.1016/j.jeconbus.2012.01.001
Ojapinwa, T. and Oladipo, B. (2014) Do Workers Remittances Promote Financial Development in Sub-Sahara African Countries? International Journal of Financial Research, 5, 151-159. https://doi.org/10.5430/ijfr.v5n2p151
Karikari, N., Mensah, S. and Harvey, S. (2016) Do Remittances Promote Financial Development in Africa. Springerplus, 5, 1011. https://doi.org/10.1186/s40064-016-2658-7
Williams, K. (2016) Remittances and Financial Development: Evidence from Sub-Saharan Africa. African Development Review, 28, 357-367. https://doi.org/10.1111/1467-8268.12202
Bhattacharya, M., Inekwe, J. and Paramati, S.R. (2018) Remittances and Financial Development: Empirical Evidence from Heterogeneous Panel of Countries. Applied Economics, 50, 4099-4112. https://doi.org/10.1080/00036846.2018.1441513
Brown, R., Carmignani, F. and Fayad, G. (2013) Migrant Remittances and Financial Development: Macro and Micro-Level Evidence of a Perverse Relationship. World Economy, 36, 636-660. https://doi.org/10.1111/twec.12016
Coulibaly, D. (2015) Remittances and Financial Development in Sub Saharan Africa: A System Approach. Economic Modelling, 45, 249-258. https://doi.org/10.1016/j.econmod.2014.12.005
Boyd, J.H., Levine, R. and Smith, B.D. (2001) The Impact of Inflation on Financial Sector Performance. Journal of Monetary Economics, 47, 221-248. https://doi.org/10.1016/S0304-3932(01)00049-6
Chinn, M.D. and Ito, H. (2002) Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence. NBER Working Paper 8967. https://doi.org/10.3386/w8967
Pesaran, M.H. (2006) Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure. Econometrica, 74, 967-1012. https://doi.org/10.1111/j.1468-0262.2006.00692.x
Kapetanios, G., Pesaran, M. and Yamagata, T. (2011) Panels with Non-Stationary Multifactor Error Structures. Journal of Econometrics, 160, 326-348. https://doi.org/10.1016/j.jeconom.2010.10.001
Breusch, T.S. and Pagan, A.R. (1980) The Lagrange Multiplier Test and Its Application to Model Specification in Econometrics. Review of Economic Studies, 47, 239-253. https://doi.org/10.2307/2297111
Pesaran, M.H. (2004) General Diagnostic Tests for Cross Section Dependence in Panels. CESifo Working Paper Series No. 1229; IZA Discussion Paper No. 1240.
Pesaran, M.H. and Yamagata, T. (2008) Testing Slope Homogeneity in Large Panels. Journal of Econometrics, 142, 50-93. https://doi.org/10.1016/j.jeconom.2007.05.010
Pesaran, M.H. (2007) A Simple Panel Unit Root Test in the Presence of Cross Section Dependence. Journal of Applied Econometrics, 22, 265-312. https://doi.org/10.1002/jae.951
Pesaran, M.H. and Tosetti, E. (2011) Large Panels with Common Factors and Spatial Correlations. Journal of Econometrics, 161, 182-202. https://doi.org/10.1016/j.jeconom.2010.12.003
Uddin, G.S., Sjo, B. and Shahbaz, M. (2013) The Causal Nexus between Financial Development and Economic Growth in Kenya. Economic Modelling, 35, 701-707. https://doi.org/10.1016/j.econmod.2013.08.031
Menyah, K., Nazlioglu, S. and Wolde-Rufael, W. (2014) Financial Development, Trade Openness and Economic Growth in African Countries. Economic Modelling, 37, 386-394. https://doi.org/10.1016/j.econmod.2013.11.044
Adeniyi, O., Ajide, B.K. and Salisu, A. (2015) Foreign Capital Flows, Financial Development and Growth in Sub-Saharan Africa. Journal of Economic Development, 40, 85-103. https://doi.org/10.35866/caujed.2015.40.3.004
Keho, Y. (2017) Effect of Remittances on Household Consumption in African and Asian Countries: A Quantile Regression Approach. Economics Bulletin, 37, 1753-1767.
Im, K.S., Peseran, M.H. and Shin, Y. (2003) Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115, 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7
World Bank (2014) Migration and Remittances: Recent Developments and Outlook. In Migration and Development Brief, 22.
Freund, C. and Spatafora, N. (2005) Remittances: Transaction Costs, Determinants, and Informal Flows. World Bank Policy Research Working Paper Series 3704. https://doi.org/10.1596/1813-9450-3704