How Do Remittance Inflows Cause the Dutch Disease in the Financial Sector? The Role of Financial Risk and Human Capital

Zeeshan Khan, Syed Muhammad Faraz Raza, Kangyin Dong () and Ilham Haouas
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Syed Muhammad Faraz Raza: ��School of Economics and Management, Wuhan University, Wuhan 430072, P. R. China
Ilham Haouas: �College of Business, Abu Dhabi University, Abu Dhabi 59911, UAE

Annals of Financial Economics (AFE), 2023, vol. 18, issue 04, 1-28

Abstract: This research examines whether the remittance (REM) inflows cause Dutch disease and how it affects financial development (FD). The sample consists of the top global REM recipients, namely China, Egypt, India, Mexico and the Philippines, based on the latest World Bank data from 1990 to 2019. This study employs three econometric models to evaluate the REM inflows’ impact on FD. Using the cross-sectionally augmented autoregressive distributed lag (CS-ARDL) estimation technique, we reveal that the REM inflows have impeded FD and have triggered Dutch disease issues in the financial sectors. Furthermore, the estimation found a positive effect of economic growth, globalization, human capital and financial risks on FD across all models, both in the short and long runs. In addition, the interplay among the REM, human capital, and financial risks also facilitates FD. The study suggests that robust resource flows and price adjustment processes tackle the hazard of deteriorating FD and emphasize the Dutch disease’s effects on the top REM recipients.

Keywords: Remittance inflows; financial development; Dutch disease effect; human capital index; financial risk index; CS-ARDL (search for similar items in EconPapers)
JEL-codes: C31 E44 F24 G01 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S2010495223400018

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