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Role of Financial Sector Development as a Contingent Factor in the Remittances and Growth Nexus: A Panel Study of Pacific Island Countries

Tiru Jayaraman (), Lin Sea Lau and Cheong Fatt Ng
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Lin Sea Lau: Universiti Tunku Abdul Rahman, Malaysia
Cheong Fatt Ng: Universiti Tunku Abdul Rahman, Malaysia

Remittances Review, 2018, vol. 3, issue 1, 51-74

Abstract: Except for emergencies and for technical assistance for raising skills and institution building, foreign aid to Pacific island countries (PICs) for budgetary support has been phased out since the late 1990s. Because of the small sized domestic markets, foreign direct investment (FDI) is small and is confined to development of tourism infrastructure. On the other hand, inward remittances received from the rising number of islanders migrating overseas for work are increasing, far exceeding aid and FDI. However, influence of remittances on economic growth depends on financial sector development (FSD) for mobilizing the savings from the remittance receipts for domestic investment. This paper assesses the role of FSD in the nexus between remittances and economic growth through a panel study of five major PICs, namely Fiji, Samoa, Solomon Islands, Tonga and Vanuatu. The study findings show that the ongoing efforts for strengthening FSD have to be stepped up by focusing on financial inclusion through spread of branchless banking and promotion of information and communication technology.

Keywords: Remittances; financial sector development; output; Pacific Islands (search for similar items in EconPapers)
Date: 2018
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Remittances Review is currently edited by Prof Ibrahim Sirkeci, Prof Dr Jeffrey H. Cohen and Prof Philip L. Martin

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