Exploring the time-varying causal nexuses between remittances and financial development in MENA region

Abstract

This paper examines the causality between remittances (REMs) and financial development (FD) in the MENA region as remittances are increasingly becoming a substantial aspect of external finance in many developing nations across the globe. The study fills the gap in the extant literature for the MENA region by exploring the inward REMs-financial development nexus via the bootstrap rolling Granger non-causality approach. A series of time-varying rolling window tests were applied based on annual-frequency data from 1980 to 2015. The analysis shows that the significant windows of directional predictability were from inward REMs to FD and the directional predictability from FD to REMs depends on the adopted indicator for FD. Furthermore, the findings reveal that shocks (demand, supply, or policy-induced) will have permanent long-run effects on the selected macroeconomic indicators in the MENA region given the identified structural breaks at various moments. Hence, policy directions were enunciated for stakeholders in the main text.

Keywords: Financial development, MENA countries, Remittances, Time-varying causality