Role of financial inclusion in enhancing the effect of remittance on economic growth in developing countries

This study examines the role of financial inclusiveness in explaining the relationship between remittances and economic growth in developing countries. Using panel data for 79 countries from 2011 to 2021, the study employed Random Effects (RE), Fixed Effects (FE), and Generalized Method of Moments (GMM) to estimate how remittances influence Gross domestic product (GDP). The results show that remittances have a positive impact on economic development and that this effect is amplified in countries with higher levels of financial inclusion. Additionally, models that incorporate financial inclusion and human capital (HC) reveal not only their ability to amplify the positive effect of remittances on GDP but also how important they are when it comes to helping long-term economic growth. The results of the GMM analysis controlling endogeneity also seem universally consistent with this evidence. The research also states that developing countries should focus on deeper financial inclusion and HC investment to fully exploit the economic potential of remittances. The policy implication of this result would be to fully leverage remittances for economic growth. This study contributes to the literature by providing empirical evidence for the necessity of mapping financial system integration and HC development with remittance flows to enhance sustainable growth.