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Do Remittances Promote Financial Inclusion?

  • Durga P. Gautam
Chapter

Abstract

Overcoming the limited access to formal financial services continues to be one of the most challenging tasks facing many developing countries. Recently, it has been argued by some authors that the rise in personal remittance inflows to these countries could be leveraged for more inclusive finance. In this essay, we examine whether remittances have provided additional avenues for policymakers to promote financial inclusion. Although some case studies have explored the potential link between remittances and households’ demand for financial services, no cross-country analysis has yet been carried out for empirical tests. We use data from the World Bank Global Findex database (Demirguc-Kunt et al., The Global Findex Database 2011: measuring financial inclusion and the Fintech revolution. The World Bank, Washington, 2011) on financial inclusion for 107 remittance-receiving countries to examine whether remittances contribute to inclusive finance. Contrary to the findings from earlier case studies, our results show that remittance inflows have a significant negative impact on financial inclusion by reducing the demand for deposit accounts from formal financial institutions. However, our results are consistent with the earlier findings that remittances do not have a significant and robust impact on the demand for credit instruments from formal institutions. These results continue to hold when the data are disaggregated for the rural sector. More importantly, the partial effects of remittances are found to be non-linear across countries.

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Durga P. Gautam
    • 1
  1. 1.University of Washington TacomaTacomaUSA

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