Non‐linear relationship between remittances and financial development in Jamaica

Abstract

We examine the relationship between financial development and remittance inflows (remittances), measured as a share of GDP, within a non‐linear framework in Jamaica over the period 1980 to 2017. By applying the autoregressive distributed lag bound testing approach to cointegration, we arrive at two key results. First, there is a long‐run cointegrating relationship running from remittances to financial development. Second, remittances and financial development are non‐linearly related. Financial development is a U‐shaped function of remittances. As remittances increase, they first have a negative impact on financial development. However, after remittances reach a threshold point, their impact on financial development is positive. Taken together, the results indicate that remittances first substitute for and then complement financial development. We provide important policy suggestions such as those that would increase remittances and those that would incentivize remittance receiving households to use these inflows in the formal financial sector.

Do Remittances Enhance Elderly Adults’ Healthy Social and Physical Functioning? A Cross-Sectional Study in Nigeria

“…The predictive margins estimated this remittance threshold amount to be NGN 1,200,00 per annum (see Figure 3 ). Though several scholars studied the nonlinear relationship between remittances and other factors [ 50 , 51 , 52 ], studies on the nonlinear relationship between remittances and health outcomes are sparse. However, a recent study [ 18 ] supports our findings.…”

“…These findings are not nationally representative and did not examine whether the effect of remittances depended on the amount of the remittances received. In fact, studies highlighting the nonlinear relationship between remittances and other indicators suggest that healthy aging could also depend on the amount of remittances received [ 50 , 51 , 52 ]. For instance, [ 18 ] found that receiving more than INR 35,000 improved the self-reported health status of left-behind Indian wives.…”

Remittance inflows and financial development in Sub-Saharan African countries: Does governance matter?

“…Increase in remittance initially substitute for financial development and, after a threshold – when remittance to GDP ratio reaches 7.28%, remittances compliment financial development. Das & McFarlane [ 29 ], in a study on the relationship between financial development and remittances, using data from 1980 to 2017 and applied autoregressive distributed lag, found a U-shaped relationship between the two. Initially, as remittances increase, they have a negative impact on financial development until a threshold is reached where an increase causes a positive impact on financial development.…”

Remittances and homicides in Jamaica

“…Several scholars have discussed the importance of remittances to Jamaica (Kim, 2007; Alleyne et al , 2008; Sampson and Branch‐Vital, 2013; Das, McFarlane, and Jung, 2019; Brown et al , 2020; Das and McFarlane, 2021a, 2021b). Over the last three decades, remittances to Jamaica have shown significant increase relative to other official financial flows.…”