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

By Sami Ben Naceur, Ralph Chami, Mohamed Trabelsi

May 22, 2020

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Sami Ben Naceur, Ralph Chami, and Mohamed Trabelsi. Do Remittances Enhance Financial Inclusion in LMICs and in Fragile States?, (USA: International Monetary Fund, 2020) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Balance of payments, Commercial banks, Financial inclusion, Financial institutions, Financial markets, Financial sector development, Financial services, Remittances

Keywords: Asia and Pacific, Banking sector matter, Commercial banks, East Asia, Effect of remittance, Financial Development, Financial inclusion, Financial sector development, Financial Stability, GMM estimator, Income level, Inflows to GDP, Remittance flow, Remittance inflow, Remittances, South Asia, Squared remittance, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/066
Stock No:

WPIEA2020066
ISBN:

9781513545394
ISSN:

1018-5941

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