The Role of Remittances for Economic Development in Asia and the Pacific Economies

University essay from Lunds universitet/Ekonomisk-historiska institutionen

Abstract: There has been little empirical study of the relationship between remittance inflows and economic growth, especially with a focus in Asia and the Pacific (APAC) region. In this paper, this relationship for 23 APAC economies is examined. A panel data set of remittances and financial development indices for the period 1990 – 2017 is set up to explore the impact of financial development on remittance – growth nexus. A newly cross-country data series of financial inclusion indices which covers 177 countries over the time period from 1990 to 2017 is also constructed to study the enhancement factor of financial inclusion on the impacts of remittance on growth in APAC. This data set presents the largest and longest running data sample constructed to date. The interactions between remittances, financial development and financial inclusion as well as their impacts on growth are tested. The results show that remittances have a positive impact on long-run economic growth in the APAC. Besides, both financial development and financial inclusion enhance the impact of remittance inflows on growth. Another finding is that in most APAC economies, remittances can promote growth in a less financially developed country whereas the remittances-driven growth is less important in more financially developed economies.

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