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Remittances And Financial Development: Substitutes Or Complements In Economic Growth?

Date Added: Sep 2009
Format: PDF

In a recent study, Chami et al. (2003) suggested that remittances can have a negative impact on economic growth of the receiving country by diminishing the work effort of the migrants' relatives. Subsequently, Giuliano and Ruiz-Arranz (2009) found that this moral hazard effect emerges only when financial development is low. In this paper, the authors introduce a new indicator of financial development measuring the efficiency domestic banking system and show that the impact of remittances on economic growth is negative (positive) in countries where bank efficiency is low (high). This complementarity result is robust to controls for other financial development and institutional quality indicators.