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<p>Remittances play a crucial role in the economies of low- and middle-income countries (LMICs), yet the impact of their transfer costs on economic growth remains underexplored. This study addresses the urgent need to reduce remittance costs, as outlined in Sustainable Development Goal (SDG) 10c. We investigate how remittance transfer costs affect their contribution to economic growth across LMICs, distinguishing between high-cost and low-cost remittance-receiving countries. We propose a theoretical model from a neo-classical economic perspective, illustrating how remittance transfer costs negatively influence the flow of remittances. For empirical exploration of the relationship between remittances and economic growth, and implicit effect of transfer cost, we specify the growth equation within augmented Solow framework. Using a balanced panel dataset of 71 LMICs from 1996 to 2021, we estimate the relationship using three econometric techniques—the cross-sectionally augmented autoregressive distributed lag (CS-ARDL), the augmented mean group, and the common correlated effects mean group (CCEMG), procedures. For the full sample, which does not account for transfer costs, our findings reveal a positive but statistically insignificant effect of remittances on growth. When we categorize the countries based on whether remittance transfer costs are above or below 3% threshold, we find interesting results. For low-cost remittance countries, the effect of remittances on growth is both positive and statistically significant, underscoring the importance of low transfer costs. The high-cost countries’ results are consistent with the results of the full sample analysis. The results confirm that reducing transaction fees can help maximize the economic benefits of remittances and promote sustainable growth in LMICs. The results are decisive for policy on scaling the positive impact of remittances on economic growth. Subsequently, ongoing policies to lower remittance costs should prioritize adoption of advanced and cost-efficient digital payment systems (including specific distributed ledger technology) for cross-border remittances. Ensuring that regulations and institutions are supportive, is necessary for deeper effect of remittances to economies heavily dependent on remittances for pro-development.</p>

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Does the effect of remittances on economic growth differ due to transfer costs? An assessment of low- and middle-income countries

  • 期刊论文

  • 发表日期：

    2026年4月29日

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  • Shasnil Avinesh Chand,
  • Ronald Ravinesh Kumar,
  • Deepak Kumar Behera,
  • Peter Josef Stauvermann

摘要

Remittances play a crucial role in the economies of low- and middle-income countries (LMICs), yet the impact of their transfer costs on economic growth remains underexplored. This study addresses the urgent need to reduce remittance costs, as outlined in Sustainable Development Goal (SDG) 10c. We investigate how remittance transfer costs affect their contribution to economic growth across LMICs, distinguishing between high-cost and low-cost remittance-receiving countries. We propose a theoretical model from a neo-classical economic perspective, illustrating how remittance transfer costs negatively influence the flow of remittances. For empirical exploration of the relationship between remittances and economic growth, and implicit effect of transfer cost, we specify the growth equation within augmented Solow framework. Using a balanced panel dataset of 71 LMICs from 1996 to 2021, we estimate the relationship using three econometric techniques—the cross-sectionally augmented autoregressive distributed lag (CS-ARDL), the augmented mean group, and the common correlated effects mean group (CCEMG), procedures. For the full sample, which does not account for transfer costs, our findings reveal a positive but statistically insignificant effect of remittances on growth. When we categorize the countries based on whether remittance transfer costs are above or below 3% threshold, we find interesting results. For low-cost remittance countries, the effect of remittances on growth is both positive and statistically significant, underscoring the importance of low transfer costs. The high-cost countries’ results are consistent with the results of the full sample analysis. The results confirm that reducing transaction fees can help maximize the economic benefits of remittances and promote sustainable growth in LMICs. The results are decisive for policy on scaling the positive impact of remittances on economic growth. Subsequently, ongoing policies to lower remittance costs should prioritize adoption of advanced and cost-efficient digital payment systems (including specific distributed ledger technology) for cross-border remittances. Ensuring that regulations and institutions are supportive, is necessary for deeper effect of remittances to economies heavily dependent on remittances for pro-development.