Transformative Flow: The Impact of Remittances on the Banking Sector
DOI:
https://doi.org/10.26439/ddee2026.n008.7946Keywords:
banking sector , remittances, two-stage least squaresAbstract
This study examines the causal links between remittance flows from abroad and the development of the banking system in Peru, using quarterly data from 2001 to 2024. A two-stage least squares (2SLS) model was employed to address endogeneity and make efficient use of the data. Remittances were found to have a significant positive impact on the development of the banking system by stimulating deposit and credit growth, improving solvency, and strengthening financial margins across banking institutions. In addition, foreign direct investment (FDI) and gross fixed capital formation were also found to contribute positively by facilitating the expansion of financial services. Gross domestic product (GDP) growth and trade liberalization are highlighted as factors that promote banking development by increasing the demand for financial services and fostering international competition. On the other hand, inflation was shown to have a negative impact by reducing the stability of the financial system, underscoring the importance of policies aimed at mitigating its adverse effects.
Downloads
References
Acosta, P. A., Fajnzylber, P., & Lopez, J. H. (2007). The impact of remittances on poverty and human capital: Evidence from Latin American household surveys (Policy, Research Working Paper No. 4247). World Bank. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/446091468046772511
Adekunle, I. A., Williams, T. O., Omokanmi, O. J., & Onayemi, S. O. (2020). Mediating roles of institutions in the remittance-growth relationship: Evidence from Nigeria (AGDI Working Paper No. WP/20/063). African Governance and Development Institute. https://www.econstor.eu/bitstream/10419/228040/1/1731778201.pdf
Adelman, I., & Taylor, J. E. (1990). Is structural adjustment with a human face possible: The case of Mexico. The Journal of Development Studies, 26(3), 387-407. https://doi.org/10.1080/00220389008422161
Aggarwal, R., Demirgüç-Kunt, A., & Martínez Pería, M. S. (2011). Do remittances promote financial development? Journal of Development Economics, 96(2), 255-264. https://doi.org/10.1016/j.jdeveco.2010.10.005
Ajefu, J. B., & Ogebe, J. O. (2019). Migrant remittances and financial inclusion among households in Nigeria. Oxford Development Studies, 47(3), 319-335. https://doi.org/10.1080/13600818.2019.1575349
Ajilorea, T., & Ikhider, S. (2012). A bounds testing analysis of migrants remittances and financial development in selected Sub-Sahara African countries. The Review of Finance & Banking, 4(2), 79-96. https://www.ceeol.com/search/article-detail?id=848701
Akçay, S. (2019). Remittances and financial development in Bangladesh: Substitutes or complements? Applied Economics Letters, 27(14), 1206-1214. https://doi.org/10.1080/13504851.2019.1676376
Al-Zubi, K. M., Al-Rjoub, S. A. M., & Abu-Mhareb, E. (2006). Financial development and economic growth: A new empirical evidence from the MENA countries, 1989-2001. Applied Econometrics and International Development, 6(3). https://ssrn.com/abstract=1247522
Ambrosius, C., & Cuecuecha, A. (2016). Remittances and the use of formal and informal financial services. World Development, 77, 80-98. https://doi.org/10.1016/j.worlddev.2015.08.010
Anzoategui, D., Demirgüç-Kunt, A., & Martínez Pería, M. S. (2014). Remittances and financial inclusion: Evidence from El Salvador. World Development, 54, 338-349. https://doi.org/10.1016/j.worlddev.2013.10.006
Apoyo & Asociados Internacionales S. A. C. (2022). Sistema bancario peruano 2022: reporte sectorial. https://www.aai.com.pe/wp-content/uploads/2023/04/Sistema-Bancario-Peru%CC%81-2022.pdf
Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance? Journal of Economic Growth, 20, 105-148. https://doi.org/10.1007/s10887-015-9115-2
Baltagi, B. H., Demetriades, P. O., & Law, S. H. (2009). Financial development and openness: Evidence from panel data. Journal of Development Economics, 89(2), 285-296. https://doi.org/10.1016/j.jdeveco.2008.06.006
Banco Central de Reserva del Perú. (2023). Memoria 2023. https://www.bcrp.gob.pe/publicaciones/memoria-anual/memoria-2023.html
Banco Central de Reserva del Perú. (2024, February 27). Remesas del exterior crecieron 19,9% en 2023. https://www.bcrp.gob.pe/docs/Transparencia/Notas-Informativas/2024/nota-informativa-2024-02-27.pdf
Bansak, C., Glebocki, H., & Simpson, N. B. (2025). The impact of the U.S. Covid-19 response on remittance flows to emerging markets and developing economies. International Economics, 182, Article 100580. https://doi.org/10.1016/j.inteco.2025.100580
Barkat, K., Mimouni, K., Alsamara, M., & Mrabet, Z. (2024). Achieving the sustainable development goals in developing countries: The role of remittances and the mediating effect of financial inclusion. International Review of Economics & Finance, 95, Article 103460. https://doi.org/10.1016/j.iref.2024.103460
Basmann, R. L. (1960). On finite sample distributions of generalized classical linear identifiability test statistics. Journal of the American Statistical Association, 55(292), 650-659. https://doi.org/10.1080/01621459.1960.10483365
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2010). Financial institutions and markets across countries and over time: The updated financial development and structure database. The World Bank Economic Review, 24(1), 77-92. https://doi.org/10.1093/wber/lhp016
Beck, T., Levine, R., & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(1-2), 261-300. https://doi.org/10.1016/S0304-405X(00)00072-6
Bencivenga, V. R., & Smith, B. D. (1991). Financial intermediation and endogenous growth. The Review of Economic Studies, 58(2), 195–209. https://doi.org/10.2307/2297964
Bettin, G., & Zazzaro, A. (2012). Remittances and financial development: Substitutes or complements in economic growth? Bulletin of Economic Research, 64(4), 509-536. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-8586.2011.00398.x
Bilalli, A., & Sadiku, M. (2023). The impact of inflation on financial sector performance: Evidence. From. Western Balkan countries. SEEU Review, 18(2), 74-89. http://dx.doi.org/10.2478/seeur-2023-0071
Birchwood, A., Brei, M., & Noel, D. M. (2017). Interest margins and bank regulation in Central America and the Caribbean. Journal of Banking & Finance, 85, 56-68. https://doi.org/10.1016/j.jbankfin.2017.08.003
Bodie, Z., & Merton, R. C. (2004). Finanzas (F. Reyes Guerrero, Trans). Pearson Educación.
Boyd, J., & Champ, B. (2009). Inflation and financial market performance: What have we learned in the last ten years? In D. E. Altig & E. Nosal (Eds.), Monetary policy in low-inflation economies (pp. 259-301). Cambridge University Press. https://doi.org/10.1017/CBO9780511605475
Brown, R. P. C., Carmignani, F., & Fayad, G. (2013). Migrants’ remittances and financial development: Macro- and micro-level evidence of a perverse relationship. The World Economy, 36(5), 636-660. https://doi.org/10.1111/twec.12016
Claessens, S., Demirgüç-Kunt, A., & Huizinga, H. (2001). How does foreign bank entry affect domestic banking markets? Journal of Banking & Finance, 25(5), 891-911. https://doi.org/10.1016/S0378-4266(00)00102-3
Coulibaly, D. (2015). Remittances and financial development in Sub-Saharan African countries: A system approach. Economic Modelling, 45, 249-258. https://doi.org/10.1016/j.econmod.2014.12.005
Cox, D. (1987). Motives for private income transfers. Journal of Political Economy, 95(3), 508-546. https://doi.org/10.1086/261470
Demirgüç-Kunt, A., López Córdova, E., Martínez Pería, M. S., & Woodruff, C. (2011). Remittances and banking sector breadth and depth: Evidence from Mexico. Journal of Development Economics, 95(2), 229-241. https://doi.org/10.1016/j.jdeveco.2010.04.002
Do, Q.-T., & Levchenko, A. A. (2004, June 17). Trade and financial development (SSRN Working Paper No. 610391). SSRN. https://ssrn.com/abstract=610391
Esteves, R., & Khoudour-Castéras, D. (2011). Remittances, capital flows and financial development during the mass migration period, 1870-1913. European Review of Economic History, 15(3), 443-474. https://doi.org/10.1017/S1361491611000037
Fajnzylber, P., & Lopez, J. H. (Eds.). (2008). Remittances and development: Lessons from Latin America. World Bank. https://hdl.handle.net/10986/6911
Forhad, M. A. R., Alam, G. M., & Rahman, M. T. (2023). Effect of remittance-sending countries’ type on financial development in recipient countries: Can the pandemic make a difference? Journal of Risk and Financial Management, 16(4), Article 229. https://doi.org/10.3390/jrfm16040229
Fromentin, V. (2018). Remittances and financial development in Latin America and the Caribbean countries: A dynamic approach. Review of Development Economics, 22(2), 808-826. https://doi.org/10.1111/rode.12368
Giuliano, P., & Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of Development Economics, 90(1), 144-152. https://doi.org/10.1016/j.jdeveco.2008.10.005
Goldberg, L. S. (2007). Financial sector FDI and host countries: New and old lessons. Economic Policy Review, 13(1), 1-17. https://ideas.repec.org/a/fip/fednep/y2007imarp1-17nv.13no.1.html
Greene, W. H. (2002). Econometric analysis (5th ed.). Prentice Hall. https://www.ctanujit.org/uploads/2/5/3/9/25393293/_econometric_analysis_by_greence.pdf
Gupta, S., Pattillo, C. A., & Wagh, S. (2009). Effect of remittances on poverty and financial development in Sub-Saharan Africa. World Development, 37(1), 104-115. https://doi.org/10.1016/j.worlddev.2008.05.007
Haruna, I. (2019). Harnessing international remittances for financial development: The role of monetary policy. Ghana Journal of Development Studies, 16(2), 113-137. https://mpra.ub.uni-muenchen.de/97004/
Ikpesu, F., Akinola, A., & Ikpesu, O. A. (2020). Remittance flows and banking sector development in emerging markets: Do institutions matter? Journal of Transnational Management, 27(2), 85-96. https://doi.org/10.1080/15475778.2020.1788916
Instituto Nacional de Estadística e Informática. (2022, February 19). Remesas alcanzan más de US$ 3 500 millones y crecen 22%, recuperando niveles prepandemia [Press release]. https://m.inei.gob.pe/prensa/noticias/remesas-alcanzan-mas-de-us-3-500-millones-y-crecen-22-recuperando-niveles-prepandemia-13440/
Islam, S. B., & Mondal, L. (2023). An empirical analysis on remittances and financial development in Latin American countries. Arxiv. https://arxiv.org/abs/2309.08855
Jacklin, C. J. (1987). Demand deposits, trading restrictions, and risk sharing. In E. C. Prescott & N. Wallace (Eds.), Contractual arrangements for intertemporal trade (pp. 26-47). University of Minnesota Press. https://safe-frankfurt.de/fileadmin/user_upload/editor_common/Visitors_Center/2_Jacklin_DemandDeposits.pdf
Jolliffe, I. T. (2002). Principal component analysis (2nd ed.). Springer. https://doi.org/10.1007/b98835
Kar, M., Nazlioglu, S., & Agir, H. (2014). Trade openness, financial development and economic growth in Turkey: Linear and nonlinear causality analysis. Journal of BRSA Banking and Financial Markets, 8(1), 63-86.
Karikari, N. K., Mensah, S., & Harvey, S. K. (2016). Do remittances promote financial development in Africa? SpringerPlus, 5, Article 1011. https://doi.org/10.1186/s40064-016-2658-7
King, R. G., & Levine, R. (1993). Finance, entrepreneurship and growth. Journal of Monetary Economics, 32(3), 513-542. https://doi.org/10.1016/0304-3932(93)90028-E
Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688-726. https://ideas.repec.org/a/aea/jeclit/v35y1997i2p688-726.html
Levine, R. (2005). Finance and growth: Theory and evidence. In P. Aghion & S. N. Durlauf (Eds.), Handbook of Economic Growth (Vol. 1, Pt. A, pp. 865-934). Elsevier. https://doi.org/10.1016/S1574-0684(05)01012-9
Lucas, R. E. B., & Stark, O. (1985). Motivations to remit: Evidence from Botswana. Journal of Political Economy, 93(5), 901-918. https://doi.org/10.1086/261341
Male, S. (2009). Remittances and financial development: A study of the South-Eastern and Eastern-European countries [Master’s thesis, Jönköping University]. DiVA Portal. https://www.diva-portal.org/smash/get/diva2:235158/FULLTEXT01.pdf
Malgesini, G., & Giménez, C. (2000). Guía de conceptos sobre migraciones racismo e interculturalidad. Los Libros de la Catarata. https://www.te.gob.mx/MaterialEstudioDefensoriaPE/Libros/1.30.1%20Guía%20de%20conceptos%20sobre%20migraciones,%20racismo%20e%20interculturalidad%20253.pdf
Martínez Pizarro, J., & Reboiras Finardi, L. (Eds.). (2001). La migración internacional y el desarrollo en las Américas (LC/L.1632-P). Comisión Económica para América Latina y el Caribe. https://repositorio.cepal.org/server/api/core/bitstreams/e1b57e53-e21c-46a8-836b-fdf11e808778/content
Mhadhbi, K., Terzi, C., & Bouchrika, A. (2020). Banking sector development and economic
growth in developing countries: A bootstrap panel Granger causality analysis.
Empirical Economics, 58(6), 2817-2836. https://doi.org/10.1007/s00181-019-01670-z
Nawshin, N., Imtiaz, A., & Sarker, M. S. (2024). Comparative analysis of remittance inflows-international reserves-external debt dyad: Exploring Bangladesh’s economic resilience in avoiding sovereign default compared to Sri Lanka. Arxiv. https://arxiv.org/abs/2410.09594?
Nissanke, M., & Stein, H. (2003). Financial globalization and economic development: Toward an institutional foundation. Eastern Economic Journal, 29(2), 287-308. https://ideas.repec.org/a/eej/eeconj/v29y2003i2p287-308.html
Observatorio Económico, Financiero y Social. (2024, March). Reporte trimestral del sistema financiero: Marzo 2024. Universidad de Lima. https://www.ulima.edu.pe/sites/default/files/page/file/reporte_trimestral_sistema_financiero_marzo_2024.pdf
Opperman, P., & Adjasi, C. K. D. (2019). Remittance volatility and financial sector development in sub-Saharan African countries. Journal of Policy Modeling, 41(2), 336-351. https://doi.org/10.1016/j.jpolmod.2018.11.001
Organización Internacional para las Migraciones & Instituto Nacional de Estadística e Informática. (2015). Remesas y desarrollo en el Perú 2015. https://repository.iom.int/bitstream/handle/20.500.11788/1488/PER-OIM_007.pdf?sequence=1&isAllowed=y
Organización Internacional para las Migraciones. (2020, August 26). Instantáneas analíticas sobre la COVID-19 #53: Remesas internacionales: Actualización. https://www.iom.int/sites/g/files/tmzbdl2616/files/documents/instantaneas_analiticas_covid-19_53_remesas_internacionales_-_actualizacion.pdf
Orozco, M., & Fedewa, R. (2006). Leveraging efforts on remittances and financial intermediation (IDB Working Paper No. 24). Inter-American Development Bank. http://dx.doi.org/10.18235/0011095
Piégay, P., & Rochon, L.-P. (2005). Teorías monetarias poskeynesianas: Una aproximación de la escuela francesa. Problemas del Desarrollo, 36(143), 33-57. https://www.scielo.org.mx/scielo.php?pid=S0301-70362005000400003&script=sci_abstract
Prempeh, K. B., Kyeremeh, C., & Danso, F. K. (2023). The link between remittance inflows and financial development in Ghana: Substitutes or complements? Cogent Economics & Finance, 11(2), Article 2237715. https://doi.org/10.1080/23322039.2023.2237715
Rajan, R. G., & Zingales, L. (2003). The great reversals: The politics of financial development in the twentieth century. Journal of Financial Economics, 69(1), 5-50. https://doi.org/10.1016/S0304-405X(03)00125-9
Ramirez, M. D., & Sharma, H. (2008, junio). Remittances and Growth in Latin America: A Panel Unit Root and Panel Cointegration Analysis (Yale Economics Department Working Paper n.° 51). SSRN. https://ssrn.com/abstract=1148225
Sahay, R., Čihák, M., N’Diaye, P., Barajas, A., Bi, R., Ayala, D., Gao, Y., Kyobe, A., Nguyen, L., Saborowski, C., Svirydzenka, K., & Yousefi, S. R. (2015, May). Rethinking financial deepening: Stability and growth in emerging markets (IMF Staff Discussion Note No. SDN/15/08). International Monetary Fund. https://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf
Saisana, M., & Tarantola, S. (2002). State-of-the-art report on current methodologies and practices for composite indicator development (EU publication No. EUR 20408 EN). European Commission Joint Research Centre. https://op.europa.eu/en/publication-detail/-/publication/9253d939-b47b-4428-b792-619e6b6c8645
Sargan, J. D. (1958). The estimation of economic relationships using instrumental variables. Econometrica, 26(3), 393-415. https://doi.org/10.2307/1907619
Schumpeter, J. A. (2008). The theory of economic development: An inquiry into profits, capital, credit, interest and the business cycle (R. Opie, Trans.). Transaction Publishers. https://www.researchgate.net/publication/272398717_Schumpeter_JA_1934_2008_The_Theory_of_Economic_Development_An_Inquiry_into_Profits_Capital_Credit_Interest_and_the_Business_Cycle_New_Brunswick_USA_and_London_UK_Transaction_Publishers (Original work published 1911)
Stiglitz, J. E., & Weiss, A. (1981, June). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393-410. http://www.jstor.org/stable/1802787
Toasa, H. R. (2016). Las remesas familiares y su impacto en el crecimiento económico en el Ecuador, periodo 2000-2014 [Undergraduate thesis, Universidad Nacional de Chimborazo]. DSpace UNACH. http://dspace.unach.edu.ec/handle/51000/3202
Toxopeus, H. S., & Lensink, R. (2008). Remittances and financial inclusion in development. In T. Addison, & G. Mavrotas (Eds.), Development Finance in the Global Economy. Studies in Development Economics and Policy. Palgrave Macmillan. https://doi.org/10.1057/9780230594074_10
Weerawarna, R., & Miah, S. J. (2023). Empowering remittance management in the digitised landscape: A real-time Data-Driven Decision Support with predictive abilities for financial transactions. Arxiv. https://arxiv.org/abs/2311.11476
World Bank. (2023, December 18). Remittance flows continue to grow in 2023 albeit at slower pace [Press release]. https://www.worldbank.org/en/news/press-release/2023/12/18/remittance-flows-grow-2023-slower-pace-migration-development-brief
Wray, L. R. (1992). Commercial banks, the central bank, and endogenous money. Journal of Post Keynesian Economics, 14(3), 297-310. https://www.jstor.org/stable/4538297
