Remittances as a driver of economic growth: the moderating impact of financial development in developing economies

Abstract

Purpose

The aim of this research is to examine the moderating impact of financial development (FD) on the relationship between remittance inflows and economic growth in 82 developing countries.

Design/methodology/approach

This research utilized dynamic panel data estimation, specifically the system generalized method of moment (GMM), on a panel data set comprised of 82 developing economies from 2000 to 2022.

Findings

The findings indicate that the interaction of remittances and FD proxies by size and depth creates a substitute effect to reduce economic growth. In contrast, the interaction of remittances and FD proxy by efficiency creates complementarity by attracting remittances that accelerate economic growth. The robustness of the findings is further checked across upper- and lower-middle-income countries, respectively.

Research limitations/implications

This study assists policymakers in attracting remittance inflows through FD and spending them in sustainable, productive ways to boost economic growth in developing economies.

Social implications

The policymakers should have interactive remittances–FD policies to improve not only economic growth but also the social welfare of the developing economies.

Originality/value

This work contributes significantly to the underexplored literature on the moderating impact of FD on the relationship between remittance inflows and economic growth in the developing countries context. This research utilizes maximum proxies of FD that not only examine the remittance but also investigate how FD various proxies shape the relationship between remittances and economic growth.

Citation

Afridi, M.A., Khan, I., Rahman, H.U. and Khan, M.R. (2024), "Remittances as a driver of economic growth: the moderating impact of financial development in developing economies", Journal of Economic and Administrative Sciences, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JEAS-05-2024-0143