The Symmetric and Asymmetric Effect of Remittances on Financial Development: Evidence from South Africa

Mduduzi Biyase and Yourishaa Naidoo
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Yourishaa Naidoo: School of Economics, College of Business and Economics, University of Johannesburg, Auckland Park Kingsway Campus, P.O. Box 524, Auckland Park, Johannesburg 2006, South Africa

IJFS, 2023, vol. 11, issue 1, 1-17

Abstract: Investigating the remittance-financial development relationship is an ongoing endeavor among economists and policy makers. Building and improving on the existing work, this study considers the possibility that the relation between remittances and financial development is potentially asymmetric. This study applies the linear ARDL and captures the possibility of an asymmetrical relationship by applying the non-linear Autoregressive Model (NARDL). Using NARDL, an attempt is made to estimate the short-run and long-run asymmetric responses of financial development through positive and negative partial sum decompositions of changes in remittances. To assess the robustness of the ARDL and NARDL estimates, a battery of long-run robustness tests were employed, including the linear and nonlinear versions of the fully modified ordinary least squares (FMOLS). Annual data series from 1980 to 2017, derived from the World Development Indicators, Fred Economic data and Penn World Tables were used for this study. The ARDL results reveal a positive and significant impact of remittances on financial development, whereas NARDL estimations suggest a both positive and negative shock of remittances on financial development in the long run: a percentage (%) increase in the remittances brings about 0.121568 percent increase in financial development, whereas a one-percent decrease in remittances produces a 0.33363 percent decrease in financial development.

Keywords: remittances; financial development; domestic credit (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Symmetric and Asymmetric Effect of Remittances on Financial Development: Evidence from South Africa (2023)
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