The long-run and short-run impacts of remittances on financial development in developing countries

This paper analyzes the dynamic impact of remittances on financial development for emerging and developing countries over the period 1974-2014 employing a Pooled Mean Group (PMG) approach. With three panels differentiated by level of income, our results show that a positive long-run relationship between remittances and financial development coexists with a significant (and slightly positive) short-run relationship, except for low-income countries. Consequently, there is strong evidence supporting the view that remittances promote financial development in developing countries in the long term, but the effect may be different in the short term. We offer some financial and economic explanations for these findings.