The authors acknowledge and thank the Asian Development Bank for permission to use their data set for the household-level analysis. We also thank Eliana Jimenez, Elizabeth Kenny and Xinran Liu for their invaluable assistance in preparing this paper, and the valuable comments on earlier drafts from Sambit Battacharyya, Paul Collier, Karlygash Kuralbayeva, Simon Quinn and Rick van der Ploeg, Department of Economics, Oxford, as well as participants at the CSAE 2011 Conference, Oxford, and the Migration, Economic Change, Social Challenge Conference, UCL, London, 2011 and University of Groningen, School of Economics Seminar, March 2011. We also thank the editors and referees for their useful comments and suggestions.
Migrants’ Remittances and Financial Development: Macro- and Micro-Level Evidence of a Perverse Relationship
Article first published online: 16 JAN 2013
© 2013 Blackwell Publishing Ltd
The World Economy
Volume 36, Issue 5, pages 636–660, May 2013
How to Cite
Brown, R. P. C., Carmignani, F. and Fayad, G. (2013), Migrants’ Remittances and Financial Development: Macro- and Micro-Level Evidence of a Perverse Relationship. World Economy, 36: 636–660. doi: 10.1111/twec.12016
- Issue published online: 8 MAY 2013
- Article first published online: 16 JAN 2013
Financial development is commonly identified as an important condition for fostering investment and economic growth. It is also believed that migrants’ remittances stimulate financial development in the receiving economy, contributing indirectly to economic growth. We explore the relationship between remittances and financial development using macro- and micro-level data. From cross-country panel data, we find evidence of a negative relationship between remittances and financial deepening in developing countries. Using household survey data from a study of migrants’ remittances in two CIS countries, Azerbaijan and Kyrgyzstan, we also investigate the relationship between remittances, financial intermediation and ‘financial literacy’ among remittance-receiving households. While we find some evidence of a positive, albeit weak, relationship for Kyrgyzstan, in Azerbaijan, the relatively more financially developed economy, we uncover a strong perverse relationship. Remittances appear to deter bank intermediation and use of formal banking services. Possible reasons are explored and areas for further investigation identified.