Do Remittances Enhance Financial Inclusion in LMICs and in Fragile States?

Do Remittances Enhance Financial Inclusion in LMICs and in Fragile States?
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Volume/Issue: Volume 2020 Issue 066
Publication date: May 2020
ISBN: 9781513545394
$18.00
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Topics covered in this book

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Banks and Banking , Exports and Imports , Finance , WP , remittance inflow , Remittances , Financial inclusion , Financial Stability , Financial Development , remittance flow , squared remittance , effect of remittance , inflows to GDP , GMM estimator , Commercial banks , Financial sector development , East Asia , South Asia , Asia and Pacific , banking sector matter , income level

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Summary

This paper explores the relationship between remittances and financial inclusion for a sample of 187 countries over the period 2004-2015, using cross-country as well as dynamic panel GMM regressions. At low levels of remittances-to-GDP, these flows act as a substitute to formal financial channels, thereby reducing financial inclusion. In contrast, when remittance-to-GDP ratio is high, above 13% on average, they tend to complement formal access and usage channels, thus enhancing financial inclusion. This “U shaped” relationship highlights the role of remittance flows in financing household consumption at low levels, while raising formal household bank savings and allowing for more intermediation, at high levels of remittance-to-GDP.

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