Revisiting the effects of remittances on bank credit: a macro perspective

Richard P.C. Brown () and Fabrizio Carmignani ()
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Richard P.C. Brown: School of Economics, The University of Queensland

No 461, Discussion Papers Series from University of Queensland, School of Economics

Abstract: We investigate the effect of remittances on bank credit in developing countries. Understanding this link is important in view of the growing relevance of remittances as a source of external finance and of the beneficial impact that financial intermediation is likely to have on economic growth. Using a simple theoretical formalization, we predict the relationship to be U-shaped. We test this prediction using panel data for a large group of developing and emerging economies over the period 1960-2009. The empirical results suggest that at initially low levels of remittances, an increase in remittances reduces the volume of credit extended by banks. However, at sufficiently high levels of remittances, the effect becomes positive. The turning point of the relationship occurs at a level of remittances of about 2.5% of GDP.

Date: 2012
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac, nep-mfd and nep-mig
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Journal Article: Revisiting the Effects of Remittances on Bank Credit: A Macro Perspective (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:461

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