From Buffer to Catalysts: When Financial Institutions Unlock the Long-Run Poverty-Reducing Power of Remittances
From Buffer to Catalysts: When Financial Institutions Unlock the Long-Run Poverty-Reducing Power of Remittances

Author(s): Hany Navarra
Subject(s): Financial Markets, Human Resources in Economy
Published by: Scientia Moralitas Research Institute
Keywords: remittances; poverty; financial development; institutional threshold; SDGs; panel data;
Summary/Abstract: Remittances, the money migrant workers send to their origin country, are now a dominant external finance source for many developing countries, often surpassing official aid and foreign direct investment inflows. While widely recognized for supporting household consumption, their role in long-term poverty reduction remains contested. This study explores whether remittances only become developmentally effective under specific financial institutional conditions. Grounded in theories of absorptive capacity and institutional complementarity, it applies a dynamic panel threshold model to test whether financial system depth conditions the poverty-reducing impact of remittance inflows. Using panel data from 96 developing countries covering the period 2002 to 2021, the analysis identifies distinct regimes of remittance effectiveness. The findings offer a structural explanation for cross-country differences in remittance outcomes and provide new insight into how financial maturity shapes the developmental role of migrant transfers. Implications are drawn for SDGs related to poverty, financial access, and remittance cost reduction.

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