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1. Introduction
Between 1990 and 2015, the number of individuals living outside their countries of birth grew from 153 million people to 244 million people, which corresponds to 2.87 percent of the world population in the year 1990 and 3.32 percent of the world population in the year 2015 (United Nations). The total amount of remittances received has risen from $68 billion in 1990 to $553 billion in 2015. The average amount of money each migrant remitted (in 2011 constant dollars) has risen from $688 in 1990 to $2,128 in 2015. These amounts include only remittances that have been sent through official channels (the World Bank, United Nations, author’s calculations).
This surge in the value of remittances has attracted the attention of many researchers. During recent years, different aspects of remittances have been under the scrutiny of researchers. One of the main aspects of remittances is its impact on remittance-receiving countries. The outflow of migrants and inflow of remittances can affect remittance-receiving countries in a variety of subjects such as brain drain (Faini (2007); Bollard et al. (2011)), poverty and inequality (Barham and Boucher (1998); Adams and Page (2005)), human capital and labor supply (Sasin and McKenzie (2007); Azizi (2018); Lopez et al. (2007)), and financial development, which is the subject of this paper. Also, incentive behind remittances (Yang and Choi (2007), Lucas and Stark (1985), Azizi (2017), Azizi (2019), remittances and information flows (Seshan and Zubrickas (2015); Batista and Narciso (2016)), cost of remittances (Beck and Martinez Peria (2011)), determinants of remittances (Castillo-Ponce et al. (2011); Mak Arvin and Lew (2012)), remittances and volatility (Jackman et al. (2009)), remittances and industrialization (Asongu and Odhiambo (2019); Efobi et al. (2019)), and other miscellaneous impact of remittances on remittance-receiving countries (Karpestam (2012); Asongu et al. (2019)) are among other interesting subjects to the researchers in this field.
In this paper, I use data on 124 developing countries over the period from 1990 to 2015 to study the link between remittances and financial development as measured by the share of deposits to GDP, credit to GDP, liquid liabilities, and domestic credit to the private sector to GDP. As mentioned by Aggarwal et al. (2011), whether and how remittances might affect financial development is a priori unclear....