Harnessing international remittances for financial development: The role of monetary policy

Haruna Issahaku

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates how remittances and monetary policy independently and interactively shape the financial system of developing countries. It employs single equation instrumental variable based estimation procedures to test the hypothesis that, to boost financial development, remittances require a complementary domestic monetary policy framework which ensures price stability while limiting price distortions. The results show that remittances stimulate financial development only in countries with a favourable monetary environment. Building on these results and employing various indicators of financial development, the results suggest that remittances rise to cushion migrant households from the repercussions of poor financial intermediation, weak institutions and unfavourable business environment in the home country. By extension, the findings are germane to monetary and financial policy in developing countries.

Keywords: Remittances; Monetary Policy; Financial Development; Developing Country; Financial Development Index (search for similar items in EconPapers)
JEL-codes: E5 E52 F3 G2 (search for similar items in EconPapers)
Date: 2019-03-19, Revised 2019-07-30
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mac
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Citations: View citations in EconPapers (1)

Published in Ghana Journal of Development Studies 2.16(2019): pp. 113-137

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:97004

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