Remittances and financial development in Sub-Saharan African countries: A system approach ¬リニ

a r t i c l e i n f o This paper investigates the causality between remittances and financial sector development in Sub-Saharan African (SSA) countries. To this end, we employ the panel Granger causality testing approach that is based on Seemingly Unrelated Regressions (SUR) multivariate systems and Wald tests with country specific bootstrap critical values. Using annual data over the 1980–2010 period for 19 SSA countries, the study gives the following results. Based on liabilities as a proxy for financial sector development, remittances positively influence financial development only in four countries (Niger, Senegal, Sierra Leone and Sudan) and financial development positively impacts remittances only in Gambia. On the contrary, considering credit to measure financial depth, the results show that remittances positively affect financial development only in Sudan and financial development does not influence remittances in any country. Consequently, there is no strong evidence supporting the view that remittances promote financial development in SSA countries and financial development seems not to be a relevant determinant of remittances received in SSA countries. During the last decades, there was a drastic increase in international remittances received in developing countries. This has led researchers to examine the development impact of remittances in various dimensions including financial development. There could exist a bidirectional causal relationship between remittances and financial development. Remittances can influence financial development through two contradictory channels (Aggarwal et al., 2011 and Orozco and Fedewa, 2005). On the one hand, remittances can promote financial development by extending credits to remittance recipients or by increasing banks' loanable funds. On the other hand, remittances can mitigate credit market development by relaxing financing constraints of remittance recipients. Conversely, as mentioned by Aggarwal et al. (2011), financial sector development can increase remittances by enabling high remittances flow or by lowering remittance sending costs. This paper contributes to the exiting literature on remittances by examining the causal relationship between remittances and financial development in Sub-Saharan African (SSA) countries. The case of SSA countries is particularly interesting, since among the high remittance recipient countries, the SSA countries are characterized by a low level of financial development. Besides, the previous studies (Gupta et al. (2009) for 44 SSA countries and Aggarwal et al. (2011) for 99 developing countries including some SSA countries) that examine the interaction between remittances and financial development on SSA countries assume homogeneity of parameters on panel data setting, i.e. do not account for heterogeneity …