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A NOTE ON THE RELATIONSHIP LINKING REMITTANCES AND FINANCIAL DEVELOPMENT IN PAKISTAN

Adnan Khurshid, Yin Kedong, Adrian Cantemir Calin and Oana Popovici
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Adnan Khurshid: College of Economics, Department of Finance, Ocean University of China, Qingdao 266100, China
Yin Kedong: College of Economics, Department of Finance, Ocean University of China, Qingdao 266100, China

Studii Financiare (Financial Studies), 2017, vol. 21, issue 4, 6-26

Abstract: We study the relationship among remittances, financial development and growth using the system GMM, full sample Granger causality test and the sub-sample rolling window estimation approach for the case of Pakistan. This paper uses annual and monthly series that cover the 1992 to 2015 interval. The results of the System GMM reveal that remittances negatively affect financial development and growth in the cases in which they are not directed towards investments. In theory, remittances stabilize financial institutions and accelerate the growth process. The full-sample causality results find a unidirectional causal relationship running from financial development to remittances. The parameter stability test hints at evidence of the presence of structural changes. Therefore, this investigation relied on a bootstrap subsample rolling window causality approach that has the unique characteristic of identifying time variation in the sub-sample data. Moreover, the rolling sum of coefficients exhibits the magnitude and direction of the causal relationship. The results of the dynamic sub-sample causality approach show that there is a bidirectional causal relation between remittances and financial development. This sub-sample is correlated with relevant economic occurrences, fact that demonstrates that the results are not a simple statistical artefact.

Keywords: Remittances; Financial development; Bootstrap rolling window; Granger Causality (search for similar items in EconPapers)
JEL-codes: F24 O16 C32 G21 (search for similar items in EconPapers)
Date: 2017
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