Do Workers’ Remittances Promote Access to Finance? Evidence from Asia-Pacific Developing Countries

Abstract

This study empirically analyzes the impact of remittance inflows on access to formal financial services using panel data on thirty-eight developing countries in Asia and Oceania between 2001 and 2012. Our results indicate that remittances help to enlarge the national branch network of commercial banks. These findings are robust to changes in the dependent variable, namely, the number of commercial bank branches per person or per area, as well as the estimation method. With regard to control variables, we find that income level and economic openness have positive impacts on the number of bank branches, whereas the inflation rate has a negative impact.

KEY WORDS:

• Asia and Pacific
• financial access
• remittances

Acknowledgments

We are very grateful to three anonymous referees for many helpful comments and suggestions.

ORCID

Takeshi Inoue

http://orcid.org/0000-0003-1614-5231

Notes

^1. Unlike most studies, Brown, Carmignani, and Fayad (2013), using annual panel data for 138 countries from 1970 to 2005, indicate that remittances seem to be negatively associated with domestic credit to the private sector in terms of percentage of GDP, although this negative effect is quantitatively small.

^2. In addition, Demirgüç-Kunt et al. (2011) find a positive impact of remittances on bank deposits and loans, although the impact on bank loans is much smaller and much less robust.

^3. We selected the sample countries based on the United Nations classification for geographical areas and the definition of the World Bank for developmental stages. The thirty-eight countries covered in this study are reported in Appendix 1.

^4. The compound average growth rate of remittances during the sample period was more than 30 percent in these countries.

^5. Since the coefficients of lagged Remittances are not statistically significant, we ignore these coefficients in calculating the long-run elasticity.

Additional information

Funding

This work was supported by JSPS KAKENHI Grant Number 26380334.