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This paper addresses the relationship between remittances and home country investment in developing countries. It highlights, through both a theoretical model and an empirical analysis, the role of Financial Sector Development (FSD) in the impact of remittances on home country investment. The key contribution of the paper is to show that different transaction costs traditionally associated with the FSD, namely 'Cost of Bank Depositing' and 'Cost of External Finance', have conflicting effects on the marginal impact of remitances on investment.
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