Financial Liberalization and Remittances: Recent Longitudinal Evidence

James Bang, Aniruddha Mitra and Phanindra Wunnava

No 7497, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates the impact of financial liberalization on remittances to 84 countries over five-year intervals from 1990-2005 based on the difference-GMM method of Arellano and Bond (1991). We find that various dimensions of financial reform impact remittances differently. Increased economic freedom in the financial sector, captured by absence of direct government control over the allocation of credit, has a positive and immediate impact. Improved robustness of financial markets, captured by the effective and apolitical regulations and other policies that enhance financial markets, has a negative, lagged effect. The net combined impact of these effects suggests that the long-run effect of an across-the-board reform on remittances is slightly negative. Our results suggest that countries using liberalization to cope with external imbalances will find that granting greater financial freedom will help by attracting higher levels of remittances. However, countries using liberalization to reduce their exposure to external risks will find that policies that enhance the robustness of domestic financial markets to be more effective.

Keywords: property rights; financial liberalization; remittances (search for similar items in EconPapers)
JEL-codes: F22 O15 P48 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-07
New Economics Papers: this item is included in nep-cba and nep-pke
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Citations: View citations in EconPapers (9)

Published - revised version published in: Journal of International Trade & Economic Development, 2015, 24(8), 1077-1102

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