Addressing the effect of workers’ remittance on economic growth: evidence from MENA countries

The purpose of this paper is to study the effect of remittances on economic growth in MENA region. More precisely this study tries first to explore the short-run and the long-run relationship between remittances and economic growth. Second, the authors address how the local financial development and institutional environment influence a country’s capacity to take advantage from remittances.

The panel data unit-root test as well as the panel data co-integration is used for the purpose of the long-run remittances growth relationship and the IV technique with GMM option is adopted to study the short-run link.

This paper provides empirical evidence that remittances have a positive effect on economic growth in the long run and a negative effect in short run. The short-run effect of remittances on economic growth is conditional. In fact, it depends in the levels of financial development and institutional quality, respectively.

As practical implications, policy interventions, to improve the functioning of governance institutions, enforcing regulation and political stability, enhancing financial system and socio-economic environment are also crucial for increasing the benefit effects of remittances.

The research is an extension of previous evidence in two ways; the authors have examined the long-run and short-run remittances-growth relationship in the first time. In the second time, the authors have explored the conditional remittances-growth relationship in MENA countries. Specifically, the authors have examined whether the remittances-growth nexus is affected by financial development and institutional quality levels in MENA countries.