Do Remittances Enhance Financial Inclusion in LMICs and in Fragile States?
IMF Working Papers, May 22, 2020
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- Do Remittances Enhance Financial Inclusion in LMICs and in Fragile States?
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Bibliographic details
- Authors: Ralph Chami, Mohamed Trabelsi
- Published: May 22, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513545394.001
Research question and methodology
- Explores the relationship between remittances and financial inclusion for a sample of 187 countries over the period 2004-2015.
- Empirical approach: cross-country regressions and dynamic panel GMM regressions.
Key empirical findings
- Evidence of a "U shaped" relationship between remittance-to-GDP ratio and financial inclusion.
- At low levels of remittances-to-GDP:
- Remittances act as a substitute to formal financial channels, thereby reducing financial inclusion.
- At high levels of remittances-to-GDP:
- When the remittance-to-GDP ratio is high, above 13% on average, remittances tend to complement formal access and usage channels, thus enhancing financial inclusion.
- Mechanisms identified:
- Low remittance-to-GDP: remittance flows primarily finance household consumption.
- High remittance-to-GDP: remittances raise formal household bank savings and allow for more intermediation.
Policy implications and interpretation
- Remittance magnitude matters for financial inclusion outcomes:
- Low remittance inflows may not strengthen formal financial sector penetration and can substitute for financial services.
- High remittance inflows (above 13% of GDP on average) can promote formal savings and financial intermediation, supporting efforts to enhance financial inclusion.
- Policy focus:
- In low-remittance contexts, policies could aim to encourage channeling remittances into formal accounts and savings instruments.
- In high-remittance contexts, leverage existing remittance flows to deepen bank usage and intermediation.
Publication metadata (selected)
- Authors: Ralph Chami, Mohamed Trabelsi
- Publication date: May 22, 2020
- Series: IMF Working Papers, Working Paper No. 2020/066
- Pages: 42
- DOI: https://doi.org/10.5089/9781513545394.001
Source: Do Remittances Enhance Financial Inclusion in LMICs and in Fragile States?, IMF Working Paper by Ralph Chami and Mohamed Trabelsi (May 22, 2020).
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