The Effect of Remittances on Economic Growth in Kyrgyzstan and Macedonia: Accounting for Financial Development

Abstract

Kyrgyzstan and Macedonia have experienced a reasonable increase in remittances over the last twenty-five years. Subsequently, the extent to which remittances can be instrumental for economic development of the two countries has gained serious attention in recent development dialogues. The aim of this study is to examine the impact of remittances versus financial development on the economic growth of the two counties, complementing the burgeoning interest and focus on remittances for policy. The short-run and the long-run effects and the causality dynamics of remittances and financial development, are explored. The results show a long-run positive impact of remittances on the economic growth of these countries. The impact of financial development is negative, significant only for Kyrgyzstan and not statistically significant for Macedonia. The causality results show that remittances support economic growth for Kyrgyzstan, whereas economic growth appears to propel remittances for Macedonia.

Evaluation of the Long-Term Stability and Impact of Remittances and Development Aid on Sustainable Economic Growth in Developing Countries

“…Overall, the trends in remittances tend to be more stable than trends in development aid and may be thus considered as a more important factor that contributes to sustainable economic development. This result is in accordance with References [45,48,51], although this effect might contribute more likely to longer-term growth in countries with higher quality political and economic policies and institutions, as pointed out by References [45] or [47]. Because changes in development aid showed little correlation with changes in GDP, it appears that development aid does little to influence long-term (sustainable) economic growth based on the data studied here as pointed out by References [39][40][41].…”

“…Remittances flows are overall more stable than the inflows of developing aid and are also positively related to the sustainable social and economic development of developing countries. This result extends the conclusions presented by Reference [51] or [52] aimed at few developing countries (such as Macedonia, Kyrgyzstan or Bangladesh) only. Except for the 1980s, remittances (expressed as the share to GDP) were less volatile and thus more stable than development aid in the analysed countries.…”

“…Positive short and long-run effect of remittances in Guyana was proved by Reference [43] where the Granger-causality test reveals the influence of capital stock, development aid and financial deepening on remittances inflow. Reference [51] examined the impact of remittances on the economic growth in Kyrgyzstan and Macedonia. Their results proved a long-run positive impact of remittances on the economic growth of these countries.…”

Interactive Effects of Remittances and Financial Sector Development on Economic Growth in Nigeria

“…For this reason, this bank-based financial proxy is more appropriate for this study. It is often argued to be a more superior and appropriate measure of financial sector development (Ang & McKibbin, 2007;Calderón & Liu, 2003;Jayaraman et al, 2016); this proxy is the preferred measure of financial sector development used by Beck, Levine, and Loayza (2000) and Kumar, Stauvermann, and Prasad (2017). It can also be directly linked to private investment and economic growth (Mundaca, 2009).…”

Do Remittances Enhance Financial Development in Transitional Markets?

“…The positive role of financial development on economic growth is undisputed and widely documented in the recent literature (Bongini et al 2017). It is also important to note that remittances also have a positive direct influence on economic growth (Kumar et al 2018). Thus, financial development and remittances are all important determinants of economic growth, but, it also is interesting to note that their interaction enhances Gross Domestic Product (GDP), according to Aggarwal et al (2011).…”