The authors use cross-country balance of payments data on workers’ remittance flows to 99 developing countries from 1975-2003 to study the impact of remittances on financial sector development. This study examines whether remittances contribute to increasing the aggregate level of deposits and credit intermediated by the local banking sector.  The authors conclude that remittances have a positive and significant impact on financial development.  In particular, a one percentage point increase in the share of remittances to GDP is associated with a 0.5-0.6 percent increase in the ratio of bank deposits to GDP and about a 0.3 percent increase in bank credit to the private sector to GDP.  The results are robust to the inclusion of country and time fixed-effects, and instrumental variables to deal with measurement error and potential endogeneity concerns.

Publication Details

Do Workers’ Remittances Promote Financial Development?
Aggarwal, Reena
World Bank
Publish Date
Aggarwal, Reena, Do Workers' Remittances Promote Financial Development? (World Bank, 2006).