Remittances, Financial Development and Economic Growth - A Dynamic Panel Data Approach
Remittances, Financial Development and Economic Growth - A Dynamic Panel Data Approach

Summary/Abstract: This study investigates the relationships between remittances, financial development, and economic growthin Western Balkan countries during 2002-2022. Employing a dynamic panel data approach, the research en-compasses a multi-faceted regression strategy, including Ordinary Least Squares (OLS), Fixed Effects, and Two-Stage Least Squares (2SLS) models. This approach is particularly designed to address potential endogeneityissues in remittances and financial development indicators. The analysis reveals that remittances have been asignificant growth driver in the Western Balkans, with their impact being more pronounced in countries withless developed financial systems. This finding suggests a substitutive relationship between remittances andfinancial development. The study also indicates that financial development, measured through Money Supplyand Net Interest Margin, has a complex and unclear impact on economic growth. The interaction betweenremittances and financial development is also a focal point, with significant negative coefficients indicatingthat in regions with limited financial development, remittances play a crucial role in filling the gaps left byinefficient financial markets. The study contributes to the understanding of how remittances and financialdevelopment interact and influence economic growth, providing valuable insights for policy formulation inthe Western Balkans.

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