Remittances, Financial Development and Economic Growth of Different Financial Systems: A Panel Data Analysis

Abstract

This paper investigates the relationship between remittances and the development of a financial system in impacting economic growth by using a panel dataset of 44 countries from 2001 to 2019. The paper examines the effects of remittance and financial development on the economic growth of different financial systems by employing Pooled OLS, Fixed Effects, and Random Effects estimation methods.The results from the Fixed Effects analysis suggest a significant negative effect of remittance on economic growth and no significant effect of the different variables taken to represent financial development. System Generalized Method of Moments (SGMM) accounts for the endogeneity between remittance and financial development and any other endogenous errors created within the model. The SGMM findings show no significant effect of remittance or financial development. With the incorporation of financial systems into the equation, it is evident that the impact of financial development varied among the two types of financial systems.