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International Finance Final Project 2
International Finance Final Project 2
International Finance Final Project 2
College of Business
Business Management department
International Finance course
Thesis topic:
International remittances impact on economic growth
Advisor:
Dr. Uzair Bhatti
Preparation:
Solin Younes
Sarhat Khamo
Nadiya Osman
TABLE OF CONTENTS:
INTRODUCTION:..........................................................................................................................................2
LITRATURE REVIEW:.....................................................................................................................................3
Summary of previous papers:..................................................................................................................3
Hypotheses..............................................................................................................................................3
METHODOLOGY:..........................................................................................................................................3
FINDINGS:....................................................................................................................................................3
CONCLOSION:..............................................................................................................................................3
Summary of findings:...............................................................................................................................3
Challenges and limitation:.......................................................................................................................3
Importance of study:...............................................................................................................................3
REFERENCES:...............................................................................................................................................3
INTRODUCTION:
Individuals who live and work abroad send money back to their home countries using
remittances. These transactions can be made via a variety of methods, including banks, money
transfer companies, and digital payment platforms. Remittances are an essential source of
income for many developing-country households, and they may have a considerable influence on
both the sending and receiving nations' economy. Global remittances were anticipated to be over
$702 billion in 2020, with developing nations getting roughly $540 billion.
International remittances have existed for thousands of years, but they gained prominence in the
twentieth century when individuals began to migrate from impoverished nations to rich ones in
quest of better economic prospects. As more individuals migrated overseas, they started sending
money back home to their family, which became known as remittances. Initially, these
remittances were tiny and informal, with migrants sending money back to their home countries
through acquaintances and family members. However, as the amount of remittances increased,
official routes, such as money transfer operators, banks, and other financial institutions, were
formed. These institutional routes made sending money back home simpler and safer for
migrants.
Today, remittances have displaced foreign aid and foreign investment as a key source of revenue
for many poor nations. Global remittances to low- and middle-income nations hit $553 billion in
2019, according to the World Bank. Money sent by migrants is frequently used to meet the
fundamental needs of their family, such as food, shelter, and education, but it may also be used
to invest in small enterprises and other economic activities. As a result, remittances can help to
alleviate poverty and promote economic growth in recipient nations.
LITRATURE REVIEW:
International remittances are an important source of income for many developing nations, and
their influence on economic growth has been the topic of several studies. There has been a
growing corpus of work on this issue over the last two decades, with academics concentrating on
various elements of the link between remittances and economic growth.
Remittances are a significant source of income for people and companies in many nations across
the world, and their influence on economic growth has received much attention. Several research
have used econometric models to investigate the link between remittances and economic growth.
Dietmar Meyer and Adela Shera's (2016) work "The Impact of Remittances on Economic
Growth: An Econometric Model" examines the influence of remittances on economic growth in
a panel of 47 nations. According to the authors, remittances have a favorable and considerable
influence on economic growth.
Amuedo-Dorantes and Pozo (2006) conducted another study on the influence of remittances on
economic growth, using data from 45 developing countries and discovering that remittances had
a positive and substantial impact on economic growth. They suggest that this is due to the fact
that remittances can help to promote investment in physical and human capital while also
reducing poverty. Adams and Page (2005) discovered a favorable association between
remittances and economic growth in developing nations in their study. They contend that
remittances might operate as a stabilizing effect in volatile and uncertain economies.
The purpose of the research "Remittances and Economic Growth: Exploring the Role of
Financial Development" is to analyze the influence of remittances on economic growth and to
investigate the potential role of financial development in influencing this connection. The study
makes use of panel data from a selection of developing nations, including India, from 1990 to
2018. The authors discover that remittances have a favorable influence on economic growth and
that a well-developed financial sector strengthens the association between remittances and
economic growth. The study sheds light on the potential advantages of remittances for economic
growth, and it implies that measures focused at enhancing financial development may assist to
amplify the beneficial impacts of remittances on economic growth.
Remittances can have a substantial impact on domestic investment in addition to their impact on
economic development. Tatsuyoshi Miyakoshi et al.'s (2016) study "Impact of Remittances on
Domestic Investment: A Panel Study of Six Countries" looks at the influence of remittances on
domestic investment in a panel of six nations. Remittances have a favorable and considerable
influence on domestic investment, according to the authors, implying that remittances might play
an essential role in encouraging economic growth.
Some studies, however, have discovered that the influence of remittances on economic growth
may be dependent on the characteristics of the receiving nation. Chami et al. (2008) discovered,
for example, that the influence of remittances on economic growth is greater in nations with
lower levels of financial development. Similarly, Solimano (2008) contends that remittances may
have a limited influence on economic growth in nations with inadequate governance and
institutions.
Recent research has looked at the effects of remittances on certain areas of the economy, such as
agriculture and education. Amuedo-Dorantes and Kimmel (2011) discovered, for example, that
remittances can assist to boost agricultural output in underdeveloped nations. Meanwhile,
Docquier et al. (2016) discovered that remittances can assist poor nations enhance educational
attainment, which in turn leads to economic growth.
According to Ratha et al. (2011), remittances can help reduce poverty in developing nations by
giving additional income to households and lowering their dependency on public services. This,
in turn, has the potential to boost economic growth. The World Bank's Migration and
Development Brief (2016) presented an overview of current migration and remittance events,
including remittance flow trends and the potential impact on economic growth in recipient
countries.
Another research, Acosta et al. (2017) discovered that remittances can boost entrepreneurship in
poor nations. They argue that remittances can give households with the funds they need to
establish enterprises and generate jobs, so contributing to economic progress. According to
Amuedo-Dorantes and Pozo (2011), remittances can have a favorable influence on healthcare
expenditures in Mexican households, implying that remittances can contribute to human
development and wellness in addition to economic progress.
Yang (2008) investigated the influence of currency rate shocks on Filipino migrants and
discovered that foreign movement can increase human capital accumulation and
entrepreneurship, both of which can contribute to economic growth. Loayza et al. (2012)
investigated the impact of natural disasters on economic growth and discovered that remittances
can assist offset the negative impact of catastrophes, implying that remittances can contribute to
economic resilience and stability as well as growth.
Giuliano and Ruiz-Arranz (2009) conducted research on the influence of remittances on financial
growth in poor nations. They discovered that remittances can boost financial development by
raising demand for financial services and enhancing credit availability, which can lead to
economic growth.
Apergis et al. (2019) investigated the effect of remittances on renewable energy usage in
developing nations. They discovered that remittances can encourage the usage of renewable
energy, which can contribute to economic growth by lowering dependency on fossil fuels and
enhancing energy security.
Mohapatra and Ratha (2010) conducted research on the effect of remittances on human
development in poor nations, including education and health outcomes. They discovered that
remittances can have a favorable influence on human development, which can then contribute to
economic growth by increasing productivity and decreasing poverty.
Hypotheses:
The studies included in the article look at how remittances affect economic development and
investment in underdeveloped nations. The studies include a panel of 47 nations, 45 developing
countries, and a sample of developing countries that includes India, Turkey, Mexico, and the
Philippines. Furthermore, other studies look at how remittances affect certain sectors of the
economy, such as agriculture, education, healthcare, and entrepreneurship. The studies also
emphasize the potential benefits of remittances in terms of poverty reduction and economic
resilience. Turkey, India, Mexico, the Philippines, and many more emerging countries are
mentioned in the study.
Global remittance flows are predicted to reach $553 billion in 2021, up 1.6% from the previous
year, according to the World Bank. Despite the impact of the COVID-19 epidemic on migration
and economic activity, remittances have remained resilient and are likely to recover in the next
years. India, China, Mexico, the Philippines, and Egypt are anticipated to be the top remittance-
receiving nations in 2021, with India getting the most remittances ($83 billion).
The average cost of sending remittances in the first quarter of 2021 was 6.5%, significantly over
the UN's Sustainable Development Goal objective of 3% by 2030. The epidemic of COVID-19
has had a substantial influence on international migration and remittance flows, with many
migrant workers returning home or incurring job losses. However, remittance inflows to other
countries, such as Bangladesh and Pakistan, have increased as migrant workers sent more money
to support their families during the epidemic.
Remittances can have social and political consequences in addition to their influence on
economic progress. Remittances, for example, can influence household dynamics and gender
roles, as well as political engagement and governance in recipient nations. Some academics have
also expressed worry about the "financialization" of remittances, which occurs when remittance
flows are increasingly funneled through official financial channels such as banks and money
transfer operators rather than being utilized for informal transfers or community-based projects.
This trend has the potential to have both beneficial and negative consequences for economic
growth and financial inclusion in recipient nations.
According to the findings of the research cited, foreign remittances constitute a substantial
source of revenue for many developing nations and have a favorable influence on economic
growth. Several studies have demonstrated that remittances have a favorable and considerable
influence on economic growth, and that the presence of a well-developed banking sector can
intensify this link. In poor nations, remittances may also have a considerable impact on domestic
investment, agriculture, education, healthcare, and entrepreneurship. However, the influence of
remittances on economic growth may be affected by the characteristics of the recipient nation,
such as financial development and governance standards. Nonetheless, remittances can help to
alleviate poverty, increase economic resilience and stability, and contribute to regional and
global economic progress.
Overall, the studies indicate that remittances have a favorable and large influence on economic
growth, especially in countries with a well-developed financial sector. Remittances can also have
a considerable impact on domestic investment, helping to alleviate poverty, promote human
development, and increase economic resilience. However, the influence of remittances on
economic growth may vary according to the characteristics of the receiving nation and may be
limited in some circumstances. Furthermore, other research have looked at the effect of
remittance inflows on the real exchange rate and inflation.
CONCLOSION:
International remittances can boost economic growth by providing a supply of foreign currency
and raising household income, both of which can boost demand and consumption. Remittances
can also assist alleviate poverty and reduce inequality by providing receivers with a financial
safety net. The influence of remittances on economic growth, however, varies depending on
factors such as the quantity and frequency of remittances, the recipient country's economic
situation, and the extent to which remittances are employed for productive investment. As a
result, while foreign remittances can have a beneficial impact on economic growth, the
magnitude of this impact is dependent on a variety of conditions, and rigorous study is required
to properly comprehend their consequences.
Summary of findings:
According to the literature assessment, foreign remittances have a favorable influence on
economic growth in developing nations and can also assist to decrease poverty, enhance
investment, and foster entrepreneurship. The beneficial impacts of remittances on economic
growth may be boosted by a well-developed financial sector, but they may be limited in nations
with poor governance and institutions, or in situations with a lack of investment in certain
industries. Remittances may also help with personal growth and happiness, as well as economic
resilience and stability. Overall, the literature emphasizes the potential advantages of remittances
for economic development and implies that measures focused at boosting financial development
and governance may serve to improve remittances' beneficial impacts on economic growth.
Importance of study:
The study of the impact of international remittances on business-related development is main for
several reasons. Fundamentally, it admits policymakers and economists to believe the potential
benefits and disadvantages of fee inflows into a country. This understanding is important in
expanding tactics and policies that can optimize the use of these inflows to spur business-related
tumor. In the second place, fee inflows have enhance a meaningful beginning of convertibility
profit for many developing countries. Essentially, their affect the trade deficit and rate of
exchange cannot be avoided. Understanding the impact of fee inflows on these macroeconomic
variables is main in guaranteeing macroeconomic security. Finally, the study of worldwide fee
affect business-related tumor has main associations for want decline. Remittances are often
shipped by evacuee peasants to support their classifications back home. These inflows can have a
meaningful affect the level of material comfort and the decline of want in recipient households.
REFERENCES:
Batool, Z., Haroon, M., Ali, S., & Ahmad, R. (2019). Remittances and Economic Growth:
Exploring the Role of Financial Development. Journal of South Asian Studies, 4(1), 63-73.
Docquier, Z. (2017). Remittances and Economic Growth: Analysis of the Direct and Indirect
Effects. Journal of Economic Development, 42(4), 33-59.
Pande, A. (2016). India's Experience with Remittances: A Critical Analysis. Journal of South
Asian Studies, 1(2), 21-34.
Pushpangadan, K., & Murugan, G. (n.d.). International remittances and economic growth in a
subnational economy in India: A dynamic analysis.
Ratha, D., Mohapatra, S., & Scheja, E. (2011). Impact of migration on economic and social
development: A review of evidence and emerging issues. World Bank Policy Research
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Acosta, P., Calderon, C., Fajnzylber, P., & Lopez, H. (2017). Remittances and
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Ruiz-Arranz, M., & Vargas-Silva, C. (2013). The role of remittances in the exchange rate
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Journal of Development Economics, 90(1), 144-152.
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