Remittances, financial development and economic growth: Empirical evidence from Lesotho

Abstract

Increasingly remittances now constitute a great source of foreign currency inflows for many developing countries. In some instances remittances have outpaced the growth of foreign direct investment (FDI). Amongst others, remittances can be used as a vehicle of savings mobilisation as well as fostering the supply of credit by providing liquidity to the market. In this article we investigate the causal relationship between the remittances, financial development and economic growth in Lesotho for the period 1975 to 2010. We make use of per capita remittances, real per capita broad money supply and real per capita growth domestic product as the proxies for remittances, financial development and economic growth respectively. We then test for cointegration amongst the variables by applying the Johansen procedure and then test for Granger causality based on the vector error correction model (VECM). Our results confirm the existence of at least one cointegrating relationship and also indicate that the direction of causality runs from remittances to the economy without feedback. The results also suggest that financial development Granger causes economic growth without feedback which is consistent with 'supply-leading' growth hypothesis. The results also confirm a causal relationship running from financial development to remittances without feedback. The results also lend credence to the "complementarity' hypothesis in that, remittances complement rather than substitute financial development in bringing about economic growth. *

Empirical relationship between workers' remittances and financial development (an ARDL cointegration approach for Sri Lanka)

“…The estimated coefficient of workers' remittances indicates that 1% increases in workers' remittances rises the FD by 0.49%. The finding of this study confirms the findings of Aggarwal et al (2006), Giuliano and Ruiz-Arranz (2009), Chowdhury (2011), Cooray (2012), Workers' remittances and financial development Bettin and Zazzaro (2012), Masuduzzaman (2014), Shahzad et al (2014) and Sibindi (2014). GDP like workers' remittances positively affects the FD at 1% significance level.…”

“…Furthermore, this study finds that there is a unidirectional causality from workers' remittances to FD. In addition, Sibindi (2014) examines the relationship between workers' remittances and FD using Lesotho's time series data over the period of 1975-2010. This study uses the Johansen and Juselius cointegration, and the Granger causality test, and establishes that workers' remittances have a long-run relationship with FD and there is a unidirectional causality from workers' remittances to FD.…”

Remittance and Economic Growth Nexus in Nigeria: Does Financial Sector Development Play a Critical Role?

“…Some literature noted that remittances exert a positive influence on economic growth (Catrinescu et al, 2009;Jawaid and Raza, 2012;Kumar et al, 2018;Meyer and Shera, 2017;Nyamongo et al, 2012;Pradhan, Upadhyay and Upadhyaya, 2008), other strands of literature emphasized on a negative or zero relationship between remittances and growth (Barajas et al, 2009;Chami, Fullenkamp and Jahjah, 2005;Feeny, Iamsiraroj and McGillivray, 2014;Lim and Simmons, 2015). The inconclusive debate on the relationship between remittances and economic growth notwithstanding, the literature is more concerned whether the financial development plays a critical role in the remittances led growth relationship (Abida and Sghaier, 2014;Chowdhury, 2016;Kumar et al, 2018, Raheem, 2015Sibindi, 2014). It is argued that a well-developed and functioning financial sector is fundamental for economic growth (Bagehot, 1873;Cameron, 1967;Goldsmith, 1969;McKinnon, 1973;Schumpeter, 1912;Shaw, 1973) because it helps to produce essential information for investments, enhance efficient allocation and utilization of savings, monitor investments, improve trading and diversification, and manage risk (Levine, 2005).…”

COVID-19: The impacts of the global crises on African remittances and countries response to this an extreme crisis

“…Several studies in the literature such as Siddique et al (2012), Koay and Choong (2013), Akkoyunlu (2013), Sibindi (2014), and Dramane (2015) among others have found causality among remittances, financial development and economic growth on different countries. According to Olayungbo and Quadri (2019) in the short-run impact of remittances on economic growth is positive and statistically significant, indicating that remittances contribute positively to economic growth of the SSA countries in the short-run for both the Pooled Mean Group (PMG) and the Mean Group (MG) estimates.…”