Abstract:
This paper explores the inter-connectedness of remittances and financial development and how their
associated covariates such as savings, investment, money supply and economic growth are impacted
by this relationship. The study employs a panel vector autoregression (P-VAR) estimation technique,
and the generalized methods of moments (GMM) are applied after removing fixed effects and lagged
regressors are used as instruments to have consistent estimators. The main findings of the study
demonstrate that (i) remittances and financial development have a feedback interrelationship, and
some interlinkages are identified amongst their covariates, (ii) economic growth has a dual connection
with financial development and that (iii) savings, investment, and broad money supply influence both
financial development and remittances. These findings contribute to current discussions in the
literature as they support the importance of deepening financial markets in SSA, and attracting more
remittances. The significant role played by the diaspora in improving domestic financial depth is
confirmed. Progression in SSA economic growth helps to stimulate those in the diaspora to repatriate
most of their earnings back home.
