Remittance inflows and financial development: evidence from the top recipient countries in Sub-Saharan Africa

Abstract

This paper utilizes a panel cointegration approach to investigate the relationship between remittances and financial development in the top remittance recipient countries in Sub-Saharan Africa. Our results point to a significant and positive long-run relationship. More specifically, the pooled-mean group estimates indicate that a one-percentage point increase in remittance inflows promotes financial development by more than one percentage point. In addition, the results support the existence of bidirectional causality between remittances and financial development in the long-run. We also find some evidence that remittance pricing has a negative impact on the long-run relationship between remittances and financial development. While the results suggest that remittance inflows promote financial development, migrant workers may be timing the foreign exchange market to remit.