Remittances, Exchange Rates, and the Role of Financial Development

John Beirne, Pradeep Panthi and Guna Raj Bhatta
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Pradeep Panthi: Policy Research Institute
Guna Raj Bhatta: Nepal Rastra Bank

No 824, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper examines the role of financial development as a buffer for the appreciating effects of remittances on exchange rates using annual data from 1996 to 2021 for 146 economies, with a focus on 43 high remittance-receiving economies. A panel regression framework is employed in the baseline analysis, which remains robust to an instrumental variables approach. The findings reveal that remittances have appreciating effects on real effective exchange rates (REER), especially in high remittance-receiving economies, consistent with the “Dutch disease” mechanism. Examining subcomponents of financial development, we find that stronger domestic financial markets and market-based financial deepening are critical channels for absorbing the REER appreciation effects of remittances

Keywords: remittances; exchange rates; financial development (search for similar items in EconPapers)
JEL-codes: F24 F31 G21 O16 (search for similar items in EconPapers)
Pages: 34
Date: 2025-11-27
New Economics Papers: this item is included in nep-ifn and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:021791

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