Remittance Inflows, Financial Development and Economic Growth Nexus in Ethiopia

Abstract

The study investigates the nexus between remittances, finance and growth in Ethiopia from 1980 to 2020. There has been a significant increase in remittance inflows in recent years across developed and developing countries, and Ethiopia is not an exception. The study seeks to establish the causal relationship between financial development, remittance inflows and economic growth. the Using the ARDL and ECM-based Granger causality techniques, the study found that in the short run, a bidirectional causal relationship was found to exist between remittance inflows and finance, regardless of the proxy used. In the long run, a unidirectional causal flow was found to prevail from remittances to finance when financial institution index was used as a proxy. A distinct unidirectional causal flow from remittances to growth was found to exist in the short run – and in the long run across all finance proxies. The study may be the first of its kind to examine in depth the nexus between remittance inflows, growth and finance in Ethiopia using a wide range of finance proxies.