Remittances, financial sector development and growth: the Philippine case
Date
2014-12-17
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Abstract
Remittances play an important role in the Philippine economy, with remittances as one of its major sources of capital inflows. The macroeconomic impact of remittances in the country is thus undeniable, and must be further looked into. Previous findings on the impact of remittances on growth have been inconclusive or either negative, and so have been its relationship with financial sector development. An empirical analysis of the relationship of remittances, financial sector development and growth will be conducted, with the hypothesis that remittances significantly impact growth indirectly when coursed through the financial sector. This will be done through analysis of data from 1983 to 2013 on the annual level and from 2002 to 2013 on the quarterly level through ordinary least squares (OLS) regression and two stage least squares regression to correct for endogeniety problems. Moreover, a vector auto regression analysis will also be employed to provide further evidence. Findings show that the story of remittances in the Philippines took a shift possibly after 1998. We find that remittances have an indirect effect on growth in the short run, in that it is coursed through the financial sector. On the annual, however, remittances have a direct effect on growth and the said effect depends on the level of financial sector development. Continuous efforts by the government, financial institutions and households must be made to further encourage savings and investments to maximize the potential of capital inflows, for these efforts would not be in vain, especially in the Philippines.
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Remittances, LAW/JURISPRUDENCE::Financial law, Philippine