Remittances, Financial Development, and Growth

41 Pages Posted: 3 Mar 2006

See all articles by Paola Giuliano

Paola Giuliano

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Marta Ruiz-Arranz

International Monetary Fund (IMF)

Date Written: June 2006

Abstract

There has been little systematic empirical study on the relationship between remittances and growth. This paper attempts to examine this relationship. Using a newly constructed cross-country of data series for remittances covering a large sample of developing countries, we relate the interaction between remittances and financial development and its impact on growth. We analyze how a country's capacity to use remittances and its effectiveness in doing so might be influenced by local financial sector conditions. Given the difficulty of borrowing in developing countries, we explore the hypothesis that remittances can substitute for a lack of financial development and hence promote growth. The empirical analysis shows that remittances can promote growth in less financially developed countries. This relationship controls for the endogeneity of remittances and financial development using a Generalized Method of Moments (GMM) approach, does not depend on the particular measure of financial sector development used, and is robust to a number of sensitivity tests.

Keywords: Remittances, financial development, growth, investment, system GMM

JEL Classification: F22, F43, O16

Suggested Citation

Giuliano, Paola and Ruiz-Arranz, Marta, Remittances, Financial Development, and Growth (June 2006). IMF Working Paper No. 05/234; IZA Discussion Paper No. 2160. Available at SSRN: https://ssrn.com/abstract=888103

Paola Giuliano (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Marta Ruiz-Arranz

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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