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Remittances, banks and stock markets: Panel evidence from developing countries

Haruna Issahaku, Joshua Yindenaba Abor and Simon Kwadzogah Harvey

Research in International Business and Finance, 2017, vol. 42, issue C, 1413-1427

Abstract: The study investigates dynamic and causal linkages among international remittance inflows, banking sector development and stock market development in a large panel of developing countries. We use two stage least squares and impulse response functions to shed light on the remittance-bank-stock market nexus. We find that remittances promote banking sector development in low remittance receiving countries, but not in high remittance receiving economies. We establish a bi-causal negative link between stock markets and remittances in countries with developed banking systems. In low remittance recipient countries, remittances decrease stock market development; however, in remittance dependent countries, remittances promote stock market development. Again, stock market development promotes remittance inflows in remittance dependent countries, while obstructing it in low remittance recipient countries. We suspect lingering doubts about the quality of developing country stock markets to be behind this latter result, though the fact that most developing countries’ financial systems are bank based could also play a role.

Keywords: Banking sector development; Remittances; Developing countries; Two stage least squares; Stock market development (search for similar items in EconPapers)
JEL-codes: C33 C58 D53 F54 G21 M21 (search for similar items in EconPapers)
Date: 2017
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