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<p>We investigate the effect of financial development as a path for channeling&#xa0;international remittances into formal entrepreneurship development in developing countries. We use unbalanced panel data for 79 remittance-receiving countries between 2006 and 2020 and employ the Driscoll-Kraay robust fixed effects and the two-step system-GMM estimators. Contrary to popular notion, our findings indicate that remittances alone do not have robust positive impact on the establishment of new formal businesses. Specifically, remittances and entrepreneurship have a negative or, at best, negligible link. However, when conditioned on the level of financial development, remittances tend to be entrepreneurship-inducing in countries with better financial institutions, such as banks. We also find that countries with developed financial (stock) markets&#xa0;rely less on remittances for entrepreneurship development. Our findings suggest that remittances address credit constraint and agency problems through increased deposits and collateral signaling when integrated with financial institutions. This finding contradicts the notion that remittances and financial development are substitutes but points to a complementy relationship. The findings are robust to various empirical specifications and hold important policy implications&#xa0;which are discussed in the paper.</p>

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Leveraging Remittances for Entrepreneurship: The Role of Financial Development in Developing Economies

  • 期刊论文

  • 出版模式：

    开放获取

  • 发表日期：

    2025年7月23日

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  • Usman Alhassan,
  • Jean-Claude Maswana,
  • Kazuo Inaba

摘要

We investigate the effect of financial development as a path for channeling international remittances into formal entrepreneurship development in developing countries. We use unbalanced panel data for 79 remittance-receiving countries between 2006 and 2020 and employ the Driscoll-Kraay robust fixed effects and the two-step system-GMM estimators. Contrary to popular notion, our findings indicate that remittances alone do not have robust positive impact on the establishment of new formal businesses. Specifically, remittances and entrepreneurship have a negative or, at best, negligible link. However, when conditioned on the level of financial development, remittances tend to be entrepreneurship-inducing in countries with better financial institutions, such as banks. We also find that countries with developed financial (stock) markets rely less on remittances for entrepreneurship development. Our findings suggest that remittances address credit constraint and agency problems through increased deposits and collateral signaling when integrated with financial institutions. This finding contradicts the notion that remittances and financial development are substitutes but points to a complementy relationship. The findings are robust to various empirical specifications and hold important policy implications which are discussed in the paper.