Journal of Applied Finance & Banking

Finance, Institutions, Remittances and Economic growth: New Evidence from a Dynamic Panel Threshold Analysis

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  • Abstract                    

    This paper empirically examines how the local financial development and institutions influence a country’s capacity to take advantage from remittances over the period 1985-2014. We use a dynamic panel threshold model (see Hansen, 1999 and Caner and Hansen, 2004) to estimate remittances thresholds for long-term economic growth. The evidence strongly suggests that the impact of remittances on economic growth depends on the level of financial development and the institutional environment. More precisely, a strong institutional environment is sine qua non for the effective contribution of remittance to sustainable growth in ECOWAS countries. One of main contributions of this paper is to successfully identify the conditions under which the remittance has a positive impact on economic growth. This is crucial for governments in the ECOWAS area to improve institutional quality and the support they provide for the financial system, in their economies should therefore be a main priority for policy makers as there are gains to be made in terms of economic development. The results seem to indicate the design of policies that would facilitate simultaneous improvements in institutions indicators and financial development indicators.

    JEL classification numbers: F24, O16, O15, P24
    Keywords: Remittances, Economic growth, Dynamic panel threshold model, Institutions quality, Financial development.