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AEC 2008 - International Capital Flows

30-Nov-2008

The fundamental challenge about remittances is that they are viewed as a new source of development finance. Focusing on the case of Senegal in the period 1974 to 2005, this paper analyses how financial development affects the impact of remittances on economic growth. The empirical analysis reveals a positive and significant interaction between remittances and financial instruments, suggesting that the marginal impact of remittances on economic growth is strengthened by the level of financial depth. These results, thus, support evidence of complementarity between remittances and financial depth in promoting economic growth. This implies that it is important to channel remittance flows more towards productive investment, so that the development of the financial system improves the effect of remittances on growth.

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