The nexus of remittances, institutional quality, and financial inclusion

Abstract

The present paper adopted the dynamic panel data method to investigate the effect of the inflow of remittances on financial inclusion, particularly focusing on high remittance-receiving developing countries between 2011 and 2018. The current research found that remittances that foster financial inclusion are associated with better institutional quality. The evidence revealed that the effect of remittances on financial inclusion is conditional upon individuals’ perception of the institutions. Positive coefficient on the interaction terms indicates that the impact of remittances on financial inclusion can be enhanced in the recipient countries, if the public trusts the financial institutions. Hence, the overall results of the current research suggest that the impact of remittances on financial inclusion is conditional on institutions. On a final note, the policy implications of these findings are thoroughly evaluated at the end of this paper.