Narrow Results

This paper investigates the effect of remittance inflows on financial inclusion. Using data from high remittance-receiving developing countries and applying dynamic panel data methods, we find that remittance inflow has a negative impact on financial inclusion for countries with low level of remittances. However, this relationship is positive for countries with high level of remittances. Our study found that there exists a nonlinear relationship between remittances and financial inclusion. We also show that the effect of remittances on the financial inclusion is conditional upon people’s perception about institutions.

Remittances are a major source of household income in many Asian, African, and Latin American countries. Households spend a significant portion of remittances on health and education. Given that human capital is one of the primary determinants of foreign direct investment (FDI) inflow, this study develops a model in which remittances are one of several determinants of the observed variation in FDI. The model is estimated using data from a group of 35 middle-income countries from Latin America, Asia–Pacific, and Africa. The estimated results ascribe no significance to remittances in explaining cross-country variation in FDI. However, geographically-disaggregated estimated results do establish a positive effect for African countries, no significant effect for Latin American countries, and a negative effect for the Asia–Pacific region.